The Short-Term Trend

It was such a bad day for stocks that I was hoping it would really wash out the market and put us in oversold territory. But that didn't happen. For instance, the PMO index continues to point lower, but it is still far above the low of its range.

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There was no spike in the number of new 52-week lows, and the bullish percents only ticked lower slightly. Okay, so we didn't wash out on a really bad day, so it could mean that the broader market held up well, and it was really only the big mega-cap, institutional favorites that sold off hard today.

I have some cash, although not as much as would like, and I am waiting for the short-term down trend to reach an oversold bottom before I deploy it back into the market.

The Longer-Term Trend

The SPX shown below is testing its long-term uptrend that started at the lows of February 2016. A break of the trend would target the shelf support at 2585.

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I am sticking with the view that the market will be trading sideways, and with volatile, choppy price action until the November elections. The market ran up too far, too fast in 2017, and now we are a pattern that works off that excess.

Market breadth looks healthy based on the chart below. Generally, breadth starts to break down prior to a major top which is not the case here.

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The Dow indexes look healthy, and they both continue to trade above their rising 40-week averages. The Industrials Index looks like it got ahead of itself, and it needed some time to close the wide distance between the high of January and the 40-week average.

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Here is a chart that works against stock prices. This one worries me. The trend for this Junk Bond ETF is now down, and, in general, the stock market struggles when junk bonds struggle.

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Outlook Summary:

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.

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. 

I am expecting a choppy, headline-driven, sideways market between now and the November elections.

Mike Burk is looking for a medium-term top between late April and early May, and I think he is probably right.

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