Equity index indicator summary

Market Summary for week ending March 5, 2010

Now things getting interesting….

Last week the S&P 500 Index rallied 34.21 to 1138.70 with the Dow Jones Industrial Average gaining 240.94 to 10566.20. That strength also put the two bellwethers within range of the Jan. 19 highs at 1150.45 – S&P 500 and 10729.90 – Dow. Of course, the big question now is whether or not those recent highs will be breached to reassert the uptrend begun last March? Or not.

First a little evidence before we attempt to draw some conclusions.

The nature of the short-term rally since the February 5 lows (1044.50 – S&P 500 and 9835.09 – Dow 30) suggests a classic A-B-C minor cycle retracement. The major indexes are currently tracing out what could be the "C" leg and endgame in the retracement move. But a conundrum could develop. An A-B-C rally that consists of three defined parts carries with it upside measured move implications. To fulfill its upside objectives the S&P 500 would need to rally to 1153.81 and the Dow to 10789.24. Those targets do not have to be met and could encounter resistance at those Jan. 19 highs. But if the targets are hit, we are then presented with a dilemma since new highs and the best levels since the March 2009 lows would be reached via those measured moves. Which leaves us with a question: would strength to slightly higher new highs be justification for assuming the longer-term uptrend had reasserted itself, or might strength prove to be a "draw play"?

The idea of a draw play, or a "bear trap," gains marginal credence when the volume configuration that has driven recent strength is taken into account. While prices in the S&P and the Dow have come within range of the January highs, Cumulative Volume, a measurement of buyer enthusiasm for the rally, has only recovered about one-half the distance of prices. In other words, CV is still sitting back toward levels put in place via intraday highs made Feb. 2 when the S&P 500 was at 1104 and the Dow hit 10314.

At the same time, while both the Call/Put Dollar Volume Advance/Decline Line (CPFL) and the Most Actives Advance/Decline Line (MAAD) have also held toward the January peaks, neither indicator has made a new highs.

So, for the moment the market leaves us in a quandary, a "no-man’s-land" where, even if it makes new price highs, the internals of the market leave something to be desired as measured by the majority of our key indicators. Because of those weak internals, it is possible the major indexes will not achieve new highs. That recent strength will prove to be nothing more than a failed reflex rally. This week could decide that issue.


McCurtain Most Actives Advance/Decline Line (MAAD)

MAAD moved smartly higher with the market last week. After sinking to new short-term low on Jan. 25 coincident with short-term "oversold" readings, the indicator reversed direction to the upside. But it was last as "overbought" on that same short-term cycle as at any time over the past year. At the same time, the Advance/Decline Line of the indicator has moved within range of the peak it put in place Sept. 22 on the minor cycle and Aug. 28 on the intermediate-term trend. In fact, it would only take another 21 net plusses (advances minus declines) on the daily trend and another 29 plusses on the weekly trend to create new highs in MAAD (see charts below).

Is such action possible? Of course, but as we outlined in our introductory comments, given the overall weak internals of the broad market, especially upside volume, new prices highs would be suspect. Lest we fight the tape, however, a new high in MAAD along with prices would suggest that smart money had moved away from its recent neutral to slightly bearish stance on the market to a more overt positive outlook.

For the moment we will adopt a wait-and-see approach to the market to determine if what we have been suggesting as no more than a reflex rally turns out to be something more. If, indeed, the three week mini-correction the market experienced from the Jan. 19 to the Feb. 5 lows was enough to "reset" the intermediate-term cycle for a positive "flip" from its recent negative stance. A positive tone from MAAD would underscore that outlook.

Click on charts to enlarge

McCurtain Call/Put Dollar Value Flow Line (CPFL)

CPFL, like MAAD, remains locked between the January highs and the February lows. Given the overall strength of the broad market and MAAD on the short-term cycle over the better part of the past month, we cannot preclude the possibility that CPFL will rally to a new high and its best levels since Last March. Since the indicator failed to confirm price weakness from Jan. 19 through Feb. 5 in that CPFL did not break below the mid-December price supports, there has been a lingering suggestion since then that call players, as reflected in Call Dollar Volume, were much less bearish on the market than prices would indicate. When coupled with Put Dollar Volume, CPFL has continued to hold toward the top of its range.

So, as with MAAD, we are left with a similar dilemma. If CPFL rallies to a new high along with prices, or even slightly before, we would be forced to defer to the bullish side of the ledger. If, however, new highs are not coincident with new highs in CPFL on either the short- or intermediate-term cycles, then we would continue to regard price strength with a jaundiced eye.

Click on charts to enlarge

Conclusion

Last week’s net buying in the broad indexes and two of our key indicators, MAAD and CPFL, have left us with puzzle. Despite price weakness from mid January to early February, neither indicator demonstrated significant deterioration. CPFL, especially, has held close to its recent highs. And while MAAD appeared to reflect more large investor negativity than CPFL, MAAD has recovered sharply over the past few weeks and was last in a position to seriously threaten the indicator’s short- and intermediate-term highs put in place in late August and September.

While our intermediate-term Timing Oscillator remains negative currently, and even though the short-term cycle has moved back into overbought territory, new highs by prices, new highs by our key indicators, and a flip back to positive by the Oscillator would suggest that any ensuing price weakness might then be viewed in retrospect as a pullback within the context of a new intermediate-term advance within the context of a still positive major cycle trend.

for definitions of the indicators along with links to the original stories. Robert also describes these indicators in a recent I-Trade show presentation .

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

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

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

3-5-10

16

4

3-5-10

447149

104117


*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.


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

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

1-22-10

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

3-1-10

16

4

3-1-10

60014

38638

3-2-10

10

9

3-2-10

117313

51165

3-3-10

11

7

3-3-10

72093

33556

3-4-10

16

4

3-4-10

36815

42016

3-5-10

16

4

3-5-10

152611

37485

*Note: Unchanged issues are not counted.

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.

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