General Stock Market Commentary
 

MON Sector Strength - TUE Rates - WED Medium-Term - THU Commodities Currencies - FRI Sentiment - SAT Longer-Term

The Short-Term Trend

The PMO index is looking a lot closer to the low of its range. This the level where we start looking for the market to bottom out, and for a new short-term uptrend to begin.

The new 52-Week low was definitely elevated today. When the PMO index is near the low of its range, that is when a spike in the new lows is often a signal that the market is washing out, and that a bottom is near. Now we just wait for a key reversal day, and/or a day in which the number of new 52-week lows decreases way down to a harmless level.

52-Week low for Deutsche Bank. The weakness in this bank is back on the radar screen. This article does a good job discussing the issues. A warning though, it isn't particularly optimistic.
 

Sentiment

The Investor's Intelligence Newsletter Writers Sentiment Survey came in at about 55% bulls this week. 55% is the point at which there is too much bullishness from a contrarian point-of-view. So the big selloff this week makes sense. Now we wait for bullishness to drop down to about 45% or lower as the next buying opportunity. In my opinion, this is a really good survey, and it has worked very well for me for many years. Just so you know, it tends to become less important during bear markets, and also during very bullish periods such as 2017.

The put/call ratio has also worked well for me over the years. In the chart below, I invert the 10-day ratio (to create a call/put ratio) and overlay the overbought/oversold indicator on the SPX. This chart says to wait before making new purchases. 

As a side note, I think this retest of the lows would have happened with or without all the headlines and drama from the White House. But we'll never know. I should also note that these sentiment indicators are all short and medium-term, and which means they project out to a period of about the end of April or May.
 

Per usual, the spike in the VIX turns out to be a buying opportunity, its just that it is hard to remember this while it is happening. No matter how many times I look at this chart, it is still hard for me to feel like a spike in the VIX is the time to buy. I just have to close my eyes and pull the trigger.

Of course, it isn't as easy as just "buy the spike", but I think you get it. At the moment, it looks a bullish divergence which favors the "W" pattern low.

Outlook Summary

I am expecting a choppy, headline-driven, sideways market between now and the November elections. I still plan to buy the dips for short-term gain, but over time I plan to continue to reduce my overall exposure to stocks.

The expected US economic growth rate is back down to the 2% level.

Higher rates are now a headwind for US stocks. The recent tax cut, the $300 billion spending increase, and the already out-of-control federal deficit are a set up for a very dangerous spike in interest rates.

Once again, the problems in Europe related to debt and the banking system are serious issues.  

Something else to consider is the Mueller investigation. I worry that the headlines generated by the investigation may rattle the markets more than people are currently anticipating. Based on market seasonality, Mike Burk is projecting a medium-term stock market peak in May which sounds about right to me.

The long-term outlook is increasingly more cautious.
The medium-term trend is down.
The short-term trend is down. 

Outlook from Bob Doll, Nuveen (click to see the link)

Stocks are in a sideways holding pattern

Rising rates and protectionism are headwinds

Low risk of recession or bear market this year

White House and mid-term elections present political risks

2018 could be mirror image of 2016

Investing Themes:

Technology
Banks and Brokers
Payment Processors

Gamers
Defense
Emerging Markets

Strategy:

My accounts are now about 60% stocks. The remainder is cash and bond funds. New purchases are on hold at least until the short-term trend corrects down to the bottom of its range.

Buy large cap stocks and ETFs on pullbacks of the medium-term trend.

Buy small cap growth stocks on break outs to new highs during short-term up trends.

Stop buying when the short-term trend is at the top of the range.

Take partial profits when the uptrend starts to struggle at the highs.

Never invest based on personal politics.