McCurtain indicator update for Jan. 22

Interim Market Summary for session ending Jan. 21, 2010

Thursday’s 213.27 pt. loss in the Dow Jones Industrial Average (-21.56 in the S&P 500 Index) not only caused prices in the major market indexes to sink below defined short-term uptrend lines, but selling simply highlighted the fragile nature of the market while underscoring the ongoing deterioration of key indicators like our Most Active Advance/Decline Line (MAAD) and short- and intermediate-term Momentum.

MAAD peaked August 28 on the intermediate cycle and September 22 on the minor cycle to suggest the "Smart Money" had become increasingly wary of the market while selling into strength on a net basis. In addition, Momentum on both the short and intermediate cycle has continued to indicate the market has been in an endgame for the past several weeks while probably being driven marginally higher by weaker players.

Although the larger intermediate cycle remains positive in the S&P 500 Index until just a notch above 1078 at the lower edge of a trailing 10-week price channel, we continue to think that any strength that develops in the broad market averages will be within the last phase of a rally that began last March.

Every Monday we post a weekly and daily summary of the McCurtain CPFL (Call/Put Dollar Value Flow Line) and MAAD (Most Actives Advance/Decline Line) indicator. The indicators that have been featured in Futures have proven to be helpful in predicting market trends.

In addition to the weekly update, we are updating the daily chart of both indicators every day and providing the most recent raw data so you can begin to plot the indicators on your own.

Below are definitions of the indicators along with links to the original stories.

A complete Market Summary will be available this coming Monday, January 25.

MAAD data for past 30 days* CPFL data for past 30 days

* Unchanged issues are not counted.

McCurtain Call/Put Dollar Value Flow Line (CPFL): CPFL is a dollar-weighted, options-based, divergence indicator that is plotted against an underlying index or issue to determine the "internal" health of the referenced instrument on a daily or weekly basis. So long as the CPFL remains in synch with the issue, the extant trend, bullish or bearish, should continue. When a divergence develops to the extent the CPFL fails to "confirm" price action (for example: the market index makes a new high, but the CPFL does not), the longevity of the underlying trend in the index is in doubt. CPFL can be plotted against any financial instrument that reports call and put data.

McCurtain described the CPFL in the November 2008 issue of Futures: "Options redux: 25 years into the revolution." The indicator can also be referenced in "The Encyclopedia of Technical Market Indicators," Second Edition by Robert W. Colby, CMT. McGraw Hill. 2003.

McCurtain Most Actives Advance/Decline Line (MAAD): MAAD is an indicator that reflects the market bias of so-called "smart money" to the extent large investors are committing funds, or withdrawing them, as reflected in daily and weekly Most Actives, exchange-based statistics. So long as MAAD continues to move in tandem with the index it is plotted against (the S&P 500 Index for example), the extant market trend should remain intact. But if, for example, MAAD begins to falter as the index continues higher, it should be presumed that astute investors have begun to sell into strength.

McCurtain described the MAAD in the June 2009 issue of Futures: "As smart money goes, so goes the market."

Robert McCurtain is a technical analyst, market timer and private investor based in New York City. He can be reached at traderbob@nyc.rr.com.