A short-term uptrend started on Wednesday. It looks like the trends may be more clearly defined than they were over the summer. I say this because the PMO has started reaching the upper and lower extremes during the cycles. When this happens, it makes it a lot easier to see the trends.

A bit of advice. It is tempting to just look at this chart of the PMO index to determine the cycles. I think that is a mistake. You need to add a few more indicators in order to confirm, such as advance/declines or momentum. Please see my previous posts for more info.

The Longer-Term Outlook

The Regional Bank index has people perplexed, myself included. There has been a trend break and a potential head and shoulders looking pattern. These shares are rate-sensitive, and rates have been rising, so why the trend line break?

As with most trend breaks, you have to wait for a break below support to confirm a change in trend. So maybe the shares just got ahead of themselves and are consolidating?

The Semiconductors showed strength this week after struggling last week. Which way will it go? Maybe we should assume it heads higher until there is strong evidence that the trend is broken.

I like to invest in the direction of junk bonds. While this ETF points higher, stocks are likely to head higher too.

Advance/declines are pointing in the direction of higher stock prices.

There are a few stock market negatives. The ECRI index is weak, although it may have reached its low point. The ECRI has been warning of an economic slowdown. Maybe this is why the regional banks are weak?

As you can see from the middle panel showing the small caps, just because there is an economic slowdown, it doesn't mean that stock prices can't keep heading higher.

Now we are moving into the charts that have been making me feel bearish towards stocks... incorrectly bearish. The number of new 52-week highs is way below trend meaning that far fewer stocks are pushing the indexes to new highs. The market has completely defied this indicator.

More confirmation of weak participation in the chart below, although the SPX participation has been improving nicely and these are the stocks that really matter.

Here is the big news of the week. Longer-term rates have started rising. I am one of those people that gets nervous when rates rise, and when rates decline.I think there are a lot of us out there.

I worry that massive Federal deficits will push these rates way up, and I also worry that economic wobbles will push these rates way down. If these rates continue to rise, what will happen to stocks prices, and which groups will outperform? 

Everyone's first thought is to buy the big banks, but I wonder if this trade is a little too obvious. But I will buy them if they start to outperform.

My own opinion is that technology stocks start to suffer when rates rise, and I think that has to do with their very high PE multiples. Higher rates work against stocks selling at high multiples.

Bottom line:

I am sticking with stocks, but the caution flag remains. I have been bearish, but I refuse to be one of those angry bears who can't admit that they are wrong.

Outlook Summary:

The long-term outlook is cautious. 
The medium-term trend is up as of May-10. 
The short-term trend is up as of Sep-19. 

The medium-term trend for bond prices is down as of Sept.7 (prices lower, yields higher).

Investing Themes:

Technology

Medical Products

Cyber Security

Payment Processors

Gaming 

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