I doubt we'll get much of a short-term rally until after the midterms, and then I expect some market strength through to the end of the year. The only problem with this view? Everybody else thinks the same thing.

Here is a terrific quote from today's column by Mike Burk.

Last week began with a sharp rally. Sudden sharp rallies in bear markets are the complement to the sudden sharp declines seen in bull markets.

The Long-Term Outlook

Are we near a bull market top? I don't know, but I do think there is a good chance that we are near the end of this bull market. I think we all recognize that if the market is topping, it will take awhile for the process to play out.

I don't have the time to put together a convincing presentation, so I am just going to show many of the charts I like to review, and in no particular order.

One of the early indications that there was a problem brewing in the market was the poor performance of the regional banks. Now they are showing a solid head-and-shoulders top.

This is really good evidence of medium or intermediate-term weakness, but is the pattern enough to fit into making a case for a bull market top? I'd say no.

Here is a 12-Year monthly view of the same index. From the looks of this the longer-term uptrend remains intact.

Here is the head-and-shoulders breakdown of the Semiconductors. These stocks have been this bull market's leaders, so I think a loss of this leadership is critical. I just don't see another group taking their place. But is this chart pattern big enough to indicate a bull market top?

Here is the 12-Year monthly of the Semiconductor Index, and it really has plenty of room to maneuver before breaking down. What to think?

Below is the ECRI Economic Index, the Small Caps, and the rate-of-change for M2 growth. All three panels are now looking weak.

The ECRI Index is key. A break down below the zero-level isn't the end of the world, but it is a sure sign of significant weakness. If there is a breakdown below the -5% level, then I will be completely out of stocks and I am assuming a recession will be starting.

The small caps have broken below their uptrend line which is something that didn't happen during the ECRI weakness shown in October 2017. The strength in small caps was a hint that the ECRI would turn and head higher. The opposite is occurring now.

M2 growth has been consistently weak for two years, and although it has stopped its decline, it hasn't shown strength either.

I'd say that if you combine the three panels then you have a situation that does not favor higher stock prices. However, it still isn't enough to say that the bull market has topped out.
 

The advance/ decline lines have shown some weakness, but the NYSE is holding in there. Let's check back with this chart after the midterms. The advance/ declines definitely will need to break down before saying the bull market is over.

The Dow Diffusion is below zero meaning that there is serious selling pressure in the market. It is a signal to be on the sidelines except for core holdings.. something like that. Also, the Dow still hasn't broken its 200-day. So far, this chart looks similar to all the medium-term market price pull backs.

The Summations are below zero, more indications to be on the sidelines. When these poke back up above zero then the market is a safer place.

This chart is a major concern for the bulls. The trend in new 52-Week highs has been very weak all year, and shows a really significant negative divergence with the stock indexes.

Below are the traditional measures of the economy and the stock market. They are still pointing higher despite the stock market weakness.

The strength in employment was a hint back in 2015 that we were in a soft spot, but not the end of the larger uptrend... keeping in mind that employment stats are a very late and lagging indicator.

It is hard to use employment statistics because they lag, but unless they turn down then it is impossible to be certain that a recession is starting or that the bull run is over.

What to make of this? The index of institutional stocks is holding on to its uptrend. Don't fold your cards quite yet.

Bottom line, we aren't even close to having enough evidence to say that the bull market is over, but there are enough warnings to be very cautious. I changed the wording of my longer-term outlook to be much less alarming.

Outlook Summary:

The long-term outlook is cautious.I am on watch for signs of longer-term market weakness. 
The medium-term trend is down as of Oct-4.
The short-term trend is down as of Sep-21. 
The medium-term trend for bond prices is down as of Sep-7 (prices lower, yields higher).

Investing Themes:

Medical Products

Strategy:

• Buy large cap stocks and ETFs at the lows of the medium or short-term trends.
• Buy small cap growth stocks on breaks to new highs in the early stages of 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.

General Stock Market Commentary

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