Equity index indicator summary for week of Feb. 1

Market summary for week ending Jan. 29, 2010

Okay… Now what?
That question could pretty well sum up what many market players are thinking at this market juncture after a decline over the past couple of weeks of nearly 6.8% from peak to trough in the S&P 500 Index and a loss of about 6.3% in the Dow Jones Industrial Average.
What we know is that the short-term trend that still remains negative is “oversold.” But in the early stages of a bear move oversold conditions can often stay that way even as prices continue downward. The same can be said of “overbought” in the early stages of a bull advance. But, in fact, the market is now as overdone on the downside on that lesser cycle as it was into the March 2009 lows. But that previous reading was into a major low, not after the market had been rallying for the better part of a year. Adding to the bullish cause, the intermediate-term cycle remains positive, albeit by a hair, in that momentum has yet to turn negative.

But marginal positives aside, there are nonetheless ominous breezes in the canyons of Wall Street. First, major index prices have declined below the lower edges of defined 10-week trailing price “channels.” That is the first time that has happened since those March lows. Most of the street continues to believe the first quarter of 2010 will be an up quarter and history has shown repeatedly that the crowd is rarely correct. And while intermediate-term statistics are holding positive, just barely, they are also not “oversold” like the short-term cycle, an indication there is still a possibility for more selling once short-term conditions move back to neutral to “overbought” levels.
So we are left with the possibility near-term oversold conditions occurring within the context of a weak positive on the next larger intermediate cycle could allow for some rebounding over the next several sessions. The big question then remains as to whether or not there would be enough power in such a retracement to drive prices to new intermediate-term highs (above 1150.45—S&P 500 Index and 10729.90—Dow Jones Industrial Average). That’s presuming the market even has the strength to rally from current levels. In terms of the former possibility, new highs, we think not. In terms of the latter, it’s a maybe. Or, as history has often shown, movement back toward neutral by oscillators from “oversold” on weak to neutral price action can set the stage for a resumption of a larger and newly developing trend, in this case an intermediate-term bear trend


McCurtain Most Actives Advance/Decline Line (MAAD)

Adding to the negative prognosis for the market, MAAD (see daily and weekly charts below) do not look healthy. The daily chart declined below minor support put in place December 9, 2009 last week after failing on the upside since September 22. Weekly statistics could decline to new major cycle lows with relative ease if the market experiences another week or two of concerted selling.
Underscoring weakness on both cycles is the fact that MAAD continues to emphasize that Smart Money remains skeptical of stock ownership in the current market environment. Big Money liked stocks off of the March 2009 lows and up until the end of the third quarter of 2009, but since that time appears to have been lightening into strength. This same group sold prior to the 2000 market highs and again prior to the 2007 peak. It’s highly unlikely they will be wrong this time given the fact that it is large investors who have a history of driving market prices upward—or downward.

Below charts track the daily and weekly MAAD

McCurtain Call/Put Dollar Value Flow Line (CPFL)


The Call/Put Dollar Value Flow Line (CPFL), like its MAAD counterpart, is currently “oversold” on the minor cycle, but not on the intermediate-term. And while the indicator cracked its defined uptrend (see chart below) last week, that downside violation is merely tentative at this juncture. Given the fact that we cannot preclude some near-term rebounding, the extent to which options players are willing to commit to new positions on the net long side of the Dollar Volume equation will determine whether or not CPFL rallies to a new intermediate-term high.
Also, given the fact that “oversold” conditions can persist in a new downtrend, we also cannot preclude the possibility prices could weaken even further before a short-term low and a subsequent rebound develops. In either case the bias of CPFL will continue to reflect the overall health of the market.
While the net losses of the major indexes last week seemed to have abated in terms of absolute points lost, it appears that downside selling pressures as measured by CPFL eased only slightly. Whereas the ratio of Call Dollar Volume to Put Dollar Volume the week ending January 29 was 4.37 to 1 last week the ratio only eased to 3.06 to 1. Clearly there is a lingering downside bias, but whether that tendency results in renewed selling or a rebound in the vicinity of near-term supports and short-term “oversold” conditions, the market will soon let us know.

Conclusion

After modest losses over the past two weeks, share prices as measured by the major market indexes have dipped into short-term “oversold” territory to suggest the possibility the stock market could rally over the next several sessions. It is also a fact, however, that in the early stages of a trend reversal, zones of “opportunity” can prove to be illusory. In other words, those steeped in the philosophy that buying into dips is a good thing, could be disappointed.
In other words, while we offer the possibility the market could rally at this juncture, we suspect that any strength could prove to be short-lived and within the context of a developing larger cycle decline.
We continue to believe that extreme caution at least or a seller’s mentality at worst is the best course to follow in the weeks just ahead. Put another way, sometimes we have to watch the coin flip slowly in the air before it comes up Heads or Tails. This is one of those times.

Below are the data for the last 30 days and weeks for the CPFL and MAAD indicators.


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

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

12-16-09

11

8

12-16-09

346683

61700

12-17-09

6

13

12-17-09

72777

114014

12-18-09

14

6

12-18-09

42985

60681

12-21-09

13

7

12-21-09

44113

59849

12-22-09

9

10

12-22-09

56358

58155

12-23-09

10

10

12-23-09

22741

71849

12-24-09

14

5

12-24-09

23354

19796

12-25-09

Holiday

12-25-09

Holiday

12-28-09

12

8

12-28-09

38736

27223

12-29-09

6

14

12-29-09

25008

36891

12-30-09

4

15

12-30-09

38511

21322

12-31-09

8

12

12-31-09

23350

40527

1-1-10

Holiday

1-1-10

Holiday

1-4-10

17

3

1-4-10

38165

39249

1-5-10

15

5

1-5-10

41864

20718

1-6-10

12

8

1-6-10

55939

32820

1-7-10

13

7

1-7-10

40339

33414

1-8-10

9

11

1-8-10

55056

31126

1-11-10

11

9

1-11-10

74407

73960

1-12-10

4

16

1-12-10

45919

51588

1-13-10

13

7

1-13-10

71500

56743

1-14-10

10

10

1-14-10

44095

36133

1-15-10

7

13

1-15-10

52195

72640

1-18-20

Holiday

Holiday

1-19-10

12

8

1-19-10

88318

51480

1-20-10

6

14

1-20-10

47829

74153

1-21-10

6

16

1-21-10

41110

141521

1-22-10

4

16

1-22-10

89311

276857

1-25-10

8

12

1-25-10

92904

140582

1-26-10

5

15

1-26-10

92447

152344

1-27-10

11

9

1-27-10

50997

76384

1-28-10

8

12

1-28-10

71376

145871

1-29-10

5

15

1-29-10

90158

163007

*Note: Unchanged issues are not counted.

MAAD data for past 30 Weeks* CPFL data for past 30 Weeks

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

7-10-09

2

18

7-10-09

112080

283091

7-17-09

16

4

7-17-09

1392618

93906

7-24-09

13

7

7-24-09

723868

307762

7-31-09

15

5

7-31-09

408723

227672

8-7-09

18

2

8-7-09

1004041

164326

8-14-09

10

10

8-14-09

272564

163886

8-21-09

15

5

8-21-09

1393327

120157

8-28-09

13

7

8-28-09

432501

191355

9-4-09

5

15

9-4-09

365834

179305

9-11-09

11

9

9-11-09

359980

126755

9-18-09

13

7

9-18-09

740103

210711

9-25-09

8

12

9-25-09

272801

300788

10-2-09

4

16

10-2-09

203911

461590

10-9-09

16

4

10-9-09

472452

118078

10-16-09

8

12

10-16-09

876199

125762

10-23-09

6

14

10-23-09

574031

238407

10-30-09

4

16

10-30-09

299062

898417

11-6-09

10

10

11-6-09

284004

210925

11-13-09

13

7

11-13-09

347029

147219

11-20-09

11

9

11-20-09

393221

229286

11-27-09

10

10

11-27-09

113184

195078

12-4-09

13

7

12-4-09

380418

272125

12-11-09

9

11

12-11-09

698727

204986

12-18-09

9

11

12-18-09

1879248

275057

12-25-09

14

6

12-25-09

81225

121215

1-1-10

4

16

1-1-10

58023

105653

1-8-10

17

3

1-8-10

196161

90275

1-15-10

5

15

1-15-10

171920

238731

1-22-10

3

17

1-22-10

166423

728001

1-29-10

8

12

1-29-10

230439

706372

*Note: All data is for week ending on Friday even though ending date may be a holiday.
Unchanged issues in MAAD calculations 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 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.

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.

Robert McCurtain’s CPFL and MAAD indicators, both described in past articles and in his recent I-Trade show presentation, have proven prescient and drawn a lot of attention by traders. Robert will provide a weekly update of both indicators and we will post the daily charts on futuresmag.com so check back to see what these important indicators are telling you.

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