Market Summary for week ending February 26, 2010
Ever notice that when the stock market rallies sharply it is doing so for “fundamental” reasons like anticipation of better earnings, strength in the economy, peace in Darfur. Whatever. But when the stock market is in the midst of a decline it’s for “technical” reasons. Using that logic, the decline in the market from October 2007 until March 2009 was due to “technical” inputs. Baloney.
Both assumptions are incorrect. The market rallies or declines because there are more buyers or sellers on one side of the equation than the other. Players may be buying and selling for any number of reasons. Usually, given the fact that the herd instinct is never dormant, many will buy or sell simply because that’s what everyone else is doing. That was the case into the 2000 and 2007 bull market highs. Remember the “new paradigm” in the late 90s? “It’s different this time.” You betcha. And then into the lows of last year how many stories have you heard of people selling out entire portfolios right at the bottom?
Some Wall Street strategists are now proclaiming that “the recession is over.” That’s nice, but we have never understood what that kind of information has to do with the stock market given the fact equity prices tend to lead the economy by months. In other words, such information may be proclaiming that the rally that began last March was correct in terms of direction, so confirming the direction of the economy for now, but beyond that the information is virtually useless.
So what do you do with that profoundly “late” fundamental information? Do you buy? Okay, for the sake of argument, let’s say you do. But let’s also say that the stock market has peaked on the intermediate cycle and you’re long after having based your assumption on the belated fundamental information that “the recession is over.” And if that intermediate-term weakness develops into a full blown market rout with a coincident “test” of the March 2009 lows, the fundamental analyst with the late proclamation could find that a “double dip” has developed and that, indeed, the recession is either not over after all, or there is a new recession developing. Needless to say, the investor left holding the “long” bag will get little solace from fundamental news that is months old. In other words, while keeping your eye on the ball in the stock market is important, keeping your eye on the right ball is critical. And we have never believed that watching earnings or the economy is the way to do that.
So was the market high in mid-January (1150.45--S&P 500, 10729.90—Dow 30) the top of the rally from the March 2009 lows and possibly the beginning of a substantial decline that could result in at least a test of those March lows. We think it’s possible. But what the market does next on the short-term cycle relative to recent “oversold” conditions will determine the outcome of that assumption.
McCurtain Most Actives Advance/Decline Line (MAAD)
MAAD on the minor cycle has corrected most of the “oversold” condition developed during the three-week decline in the wake of the January highs. At the same time, the daily Most Actives Advance/Decline Line demonstrated some short-term improvement, but remains decidedly below its late September 2009 peak. That action in conjunction with weekly data that topped out in late August 2009 is an indication that the so-called “Smart Money” remains skeptical of market strength. Or, at least, they have continued to sell somewhat more into strength than they are buying.
As we have mentioned in previous commentaries, if MAAD declines below its March 2009 statistical low, such action would not bode well at all for the prospects of the broad market since we have never seen an instance where MAAD diverged that much from the broad market that the market did not follow suit. Put another way, intermediate-term MAAD statistics could sink to new lows with relative ease even though index prices would lag with new lows of their own. Nonetheless, considering the indicator’s history, the intent would still be clear: the market should follow in the wake of MAAD.
In the meantime, nothing but strength above the August/September plot highs in MAAD would cause us to suspect that big money had changed its stance relative to index prices.
Click on charts to enlarge
McCurtain Call/Put Dollar Value Flow Line (CPFL)
Like its big money proxy, CPFL has corrected a large part of its recent “oversold” condition. The indicator is not yet “overbought,” but weakness in the market would allow for statistical weakness in CPFL without quickly driving the indicator back into “oversold” conditions.
Given the fact CPFL continues to look stronger than index prices to suggest Call Buyers have been more aggressive of late than Put Buyers, we cannot preclude the possibility the indicator could rally to a new statistical high to suggest investor confidence. And while we continue to think new highs will probably not develop, stabilization and strength in the S&P 100 and 500 Indexes just above their respective 200-day moving averages could be an indicator that a resumption of strength is not entirely out of the question.
Click on charts to enlarge
Click here for definitions of the indicators along with links to the original stories. Robert also describes these indicators in a recent I-Trade show presentation available online.
MAAD data for past 30 days* CPFL data for past 30 Days
|
Date |
NYSE Adv |
NYSE Dec |
Date |
OEX Call $Volume |
OEX Put $Volume |
|
1-14-10 |
10 |
10 |
1-14-10 |
44095 |
36133 |
|
1-15-10 |
7 |
13 |
1-15-10 |
52195 |
72640 |
|
1-18-10 |
Holiday |
1-18-10 |
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 |
|
2-15-10 |
Holiday |
2-15-10 |
Holiday | ||
|
2-16-10 |
16 |
4 |
2-16-10 |
116077 |
60130 |
|
2-17-10 |
12 |
8 |
2-17-10 |
171751 |
50568 |
|
2-18-10 |
14 |
6 |
2-18-10 |
62422 |
42204 |
|
2-19-10 |
10 |
9 |
2-19-10 |
103190 |
51380 |
|
2-22-10 |
13 |
7 |
2-22-10 |
139899 |
35443 |
|
2-23-10 |
6 |
14 |
2-23-10 |
69573 |
74660 |
|
2-24-10 |
16 |
4 |
2-24-10 |
36350 |
29770 |
|
2-25-10 |
8 |
11 |
2-25-10 |
69545 |
64565 |
|
2-26-10 |
9 |
11 |
2-26-10 |
32711 |
30467 |
*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 |
|
7-31-09 |
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 |
|
2-19-10 |
15 |
5 |
2-19-10 |
308216 |
96223 |
|
2-26-10 |
7 |
13 |
2-26-10 |
259727 |
180469 |
*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
Equity prices were weaker last week and the intermediate cycle remains negative in all of the major indexes as short-term “oversold” conditions have been substantially moderated over the past two weeks. But what is not yet clear is whether or not equity index prices will rally back above the mid-January highs.
While to continue to suspect recent strength could turn out to be nothing but a reflex rally following the establishment of an intermediate-term peak, given the proximity of prices to those highs, we cannot yet rule out a more bullish scenario. In any case, even in CPFL statistics result in new intermediate-term highs, we continue to suspect that MAAD data will not confirm such action. Moreover, with the history of MAAD, the lingering negative bias of large players and their tendency over the past several months to sell somewhat more than they buy is probably an indication that, ultimately, the bears will seize the day. Put another way at this juncture, we suspect MAAD could prove to be more relevant in the weeks just ahead than CPFL.
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.
