Equity index indicator summary

Market Summary for week ending February 12, 2010

For more than 25 years following the great bull market lows in the summer of 1982 and until October 2007, the flaming, even fanatical, mantra of Wall Street "value strategistis" was "buy good stocks and hold them for the long term." Of course, it only takes one exception to break that rule and the bear market of 2008 was a Tsunami rule breaker. And while equities have had a very strong rally since the March 2009 lows, many investor portfolios have not recovered from recent bear market selling and it remains to be seen if they ever will.

Behind those horrendous equity losses lingers the lockstep psychology which prevented many investors from exiting the market after they had been cajoled for so long into the belief that the "market would come back (it always has they were told)" and market pullbacks would be followed by yet another rally that would carry them to riches and the golden city.

Unfortunately, the gurus of Wall Street never told investors (if the pundits even knew themselves) just how long the long-term would last, how to identify its demise, and then what to do when the music stopped. As a consequence, when the fat lady began singing increasingly louder in the summer of 2007, most investors had their iPods turned to renditions of "Good Times are Here Again" and that song was played in denial mode over, and over, and over. In the aftermath there was proof, yet again, that buying trailing earnings that are always, always, always late, can be a sure route to portfolio suicide. In spite of that truism, even today, Wall Street continues to play its siren song. Or, to put in another way, "keep doing’ what you’re doing’ and you’ll keep getting’ what you’re getting’." Agendas tend to die hard especially if the premise is bogus.

Is Brunnhilde bellowing out her song at top pitch again? Well, she’s not in high vocal dudgeon just yet, but there’s a hint at building crescendo in the wings, short-term "oversold" conditions notwithstanding. With intermediate-term Momentum and our Trading Oscillators now negative in all of the key market indexes, we must presume that any strength that develops will occur within the context of an intermediate-term negative. And that new highs above the January 19 price peaks (1150.45—S&P 500 Index and 10729.90—Dow Jones Industrial Average) will probably hold to the extent prices will not rally above those levels.


McCurtain Most Actives Advance/Decline Line (MAAD)

Daily and weekly charts are below

MAAD declined to a new short-term low last week and ultimately held at that level at the end of the period, despite net strength in the stock market. That action suggests Smart Money is still using strength to liquidate equities. At the same time the MAAD Daily Ratio has moved upward from "oversold" territory to neutral, a characteristic of such ratios in a downtrend. In other words, as previously high negative numbers are cancelled out with new statistics that may be merely neutral to marginally positive, the ratio will rise. The question is then whether that neutral reading will be followed by more price strength and higher ratio readings to result in higher ratio levels?


But the bottom line with this indicator that topped out back in late August 2009 on the intermediate-term cycle and the third of September 2009 on the minor cycle, is that large investors have remained skeptical of the staying power of this market for nearly five months and into the last 10% of the rally that culminated in those January highs.
Could the short-term oversold conditions create a buying opportunity that would be good enough to push prices back above those January levels? Possibly, but it is highly likely that MAAD would not accompany such readings to underscore the negative attitude of sophisticated investors who have their own mantra that requires liquidation of equities into strength while many unsophisticated investors buying and holding stocks based on fundamentals will be "hooked" yet again into a significant market top.

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

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

12-31-09

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

2-1-10

19

1

2-1-10

99416

150782

2-2-10

15

5

2-2-10

54523

84015

2-3-10

4

16

2-3-10

123257

79222

2-4-10

0

20

2-4-10

167554

245460

2-5-10

11

9

2-5-10

127615

253841

2-8-10

8

12

2-8-10

39731

74195

2-9-10

13

6

2-9-10

52146

97166

2-10-10

9

11

2-10-10

52253

90331

2-11-10

13

7

2-11-10

64247

47084

2-12-10

4

15

2-12-10

58269

61976

*Note: Unchanged issues are not counted.


McCurtain Call/Put Dollar Value Flow Line (CPFL)

Daily and weekly charts are below.

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The Call/Put Dollar Value Flow Line (CPFL) declined marginally last week with the CPFL Daily Ratio continuing to hold toward "oversold" territory on the minor cycle. In fact, the CPFL has yet to break below a minor cycle support point put in place the second week of December even though external market pricing has declined below a similar level. While it’s possible to interpret those readings as suggestive of a lack of bearishness by options players, it is also true that intermediate readings as measured by the CPFL Weekly Ratio are not oversold. If that near-term oversold condition in CPFL is unraveled to the extent it moves higher while prices and the actual CPFL do not make new intermediate-term highs, such action would simply underscore our assumption that potential short-term market index strength is simply countertrend in nature.

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

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

7-24-09

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

2-5-10

7

13

2-5-10

393336

868741

2-12-10

10

10

2-12-10

252621

233578

*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.


Conclusion

Some reflex buying in equities last week had a positive effect on the minor cycle trend to the extent strength caused the Daily MAAD Ratio to move back to neutral from oversold. But there has been no coincident upward movement in minor cycle readings with the Daily CPFL Ratio to suggest it may take several more sessions to not only unwind all recent near-term negatives but also to determine whether or not prices will seriously challenge the January 19 intermediate-term highs.
Given the fact intermediate-term Momentum and all of our key trading oscillators on the intermediate cycle are now negative; we continue to presume any strength on the short-term will develop within the context of the larger and evolving intermediate cycle negative. Since the bellwether S&P 500 Index remains above is 200-day moving average at 1047.74 (1020—40 week) decisive downside weakness has yet not developed to the extent it would cause some major players to exit the market coincident with a break of key price levels in that major index.
Nonetheless, there is less than romantic music in the air and we continue to think that the adoption of an ongoing seller’s mentality in this environment could prove to be prudent in the weeks just ahead.

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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