Equity index indicator summary

Market Summary for week ending March 12, 2010

A while back we were watching a group of tourists here in the Big Apple. For the most part, the group was following the tour guide around from place to place. But there were a few recalcitrants who simply couldn’t stay focused on the job at hand and kept wandering away from the main group. It was obvious that the varied stimuli of the city were causing distractions, a possibility when too much information leads to sensory overload.

So it is with the stock market.

For the past year equities have been in a powerful rally. For the most part major indexes and indicators have moved upward together. But since last fall, and despite strength in the broad averages, some indicators have faltered. We noted the lag in the Call/Put Dollar Value indicator (CPFL) and the Most Actives Advance/Decline Line (MAAD). Some of the more traditional indicators such as the New York Stock Exchange Advance/Decline line went straight down in the 2007-2008 bear market and then straight back up. Unfortunately, that indicator is an unweighted market measurement and has failed miserably on occasion in the past, at the 2000 high and the 2002 low for example. And despite new highs in both the NASDAQ and the Amex Composite Index, the A/D Lines for neither of those indexes has yet to hit new highs. In fact, the A/D lines for both have barely budged off of their March 2009 lows.

But March 2010 has seen something of a resurgence for many indicators and indexes in that many rallied to their best highs since the March 2009 lows (see Table below). Nonetheless, despite strength to new highs and the best levels

Index/Indicator

New highs?

Level

S&P 500

3/12

1153.41

Dow 30

Not yet

---

Dow 20

3/10

4331.37

Dow 15

Not yet

---

NASDAQ

3/5

2376.78

Russell 2000

3/2

678.72

Value Line (arithmetic)

3/2

2459.77

CPFL

3/8

---

MAAD

3/11

---

NYSE A/D

3/2

---

NASDAQ A/D

Not yet

---

AMEX A/D

Not yet

---

NYSE Up/Down Volume

2/18

---

NASDAQ Up/Down Volume

New all-time high

---

AMEX Up/Down Volume

Close to new all-time high

---

since the March 2009 lows by some indexes and indicators, there have still been failures. The Dow Jones Industrial Average has yet to make a new high for the move relative to its January 19, 2010 peak at 10729.90 even though the S&P 500, often regarded as the market bellwether, did rally to a new peak for the move last Friday (1153.41). And while the NASDAQ A/D Line has noticeably failed on the upside, NASDAQ Up/Down Volume was last plotted at a new all-time high and above the March 2000 levels. But we have also noted Cumulative Volume (CV) failures in the S&P 500 index, the Dow 30 AND the Dow 20, despite new price highs in the latter. Similar CV failures are evident in the NASDAQ.

So we are left with a potpourri of indexes and indicators that have either rallied to their best levels since March 2009 or have failed. One thing they all have in common, however, is short-term "overbought" characteristics. But neutralizing that tone is the fact that our Intermediate-term Trading Oscillator moved back into positive territory last week to suggest that the mid-January to early-February was enough of a decline to "reset" the intermediate-trend to positive. As a consequence of that bias, unless there is another schizophrenic fade in the market to cause the oscillator to flip back to negative, we will now view any short-term pullback as merely a correction within the context of that new intermediate up. All of this remains within the context of a major cycle positive.


McCurtain Most Actives Advance/Decline Line (MAAD)

By a gnat’s eyebrow, MAAD rallied to a new minor cycle high last Thursday. But the indicator faded on Friday’s weak Most Actives numbers (+5 and -15). At the same time, weekly statistics that are computed off of slightly different larger cycle data base did not reach a new high last week. In fact, weekly MAAD numbers still have to improve by another 14 (net of ups minus downs) relative to the August 28 indicator peak to hit new highs.

So, like the broad market, MAAD is somewhat conflicted and inconclusive on the minor cycle while remaining stuck in negative territory on the larger intermediate trend. Since the latter bears more longer-term credence than the minor cycle, we can only continue to assume that large players are still selling somewhat more equities into strength than they are buying. In the run-up to the top in 2000 this phenomenon lasted for nearly nine months and in 2007 for almost five months until the final market highs were put in place.

What MAAD has in common with the broad market on the minor cycle, however, is that it is extremely "overbought" but that is not the case on the weekly cycle. As a consequence, it could be that the short-term trend will develop some corrective action within the context of the larger trend.

Click to enlarge charts

McCurtain Call/Put Dollar Value Flow Line (CPFL)


A massive upward spike in CPFL data last Monday (March 8) in two options contracts with volume of nearly 10,000 each, the March 440 call and the June 460 call, caused the indicator to rally to a new high on both the minor and intermediate-term cycles. Coincident with that strength, CPFL is also now extremely "overbought" on both trends.

As a consequence of that action in CPFL, the uptrend in the stock market begun after the March 2009 lows was reasserted. What remains to be seen, however, is how short-term overbought conditions will inevitably affect the larger intermediate-term trend that has been reversed to positive as measured by our Intermediate Timing Oscillator. If the Oscillator is to remain positive, short-term weakness cannot be so severe it reverses that trend back to negative. Action in CPFL on the minor cycle could be a clue as to the nature of any short-term pullback that develops if a lot of put selling does not develop.

Click to enlarge charts

Conclusion

Like the tour group we noted in our introductory comment, the stock market nonetheless continues to exhibit an overall positive tone relative to the March 2009 lows with some pockets of contradiction. That is to say, there are some laggards in key indexes and indicators to suggest the investing environment may have a few more potholes going forward than the rally experienced out of those 2009 lows.

Since the larger major cycle trend remains positive, and so long as it remains favorable as measured by long-term momentum and our Trading Oscillator, we must presume that any pullback of an intermediate-term nature will develop within that favorable context. And, lacking any negative indicator divergences on the larger cycles, as was the case into the 2000 and 2007 market highs, the net positive tone of the market ought to persist.

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 Weeks* CPFL data for past 30 Weeks

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

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

3-12-10

17

3

3-12-10

1828237

111309


*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 Weeks* CPFL data for past 30 Weeks

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

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

3-12-10

17

3

3-12-10

1828237

111309


*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.


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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