Equity index indicator summary

Retrospect is a beautiful thing. If only we could go through life looking in a rearview mirror to see how everything played out--perfectly. Unfortunately, such a viewpoint wouldn’t be much of a challenge because it would deprive us of all the chances for making stupid mistakes from which we can learn. Like failing to buy puts on Enron a few years back when it was wavering near $0 before catapulting down to zip. Or not going long Google when it was trading near $100 a few years ago (last near $560).

But hey, it’s only money, right? And when you’re talking about the stock market, mistakes are just part of the game so long as our successes ultimately outweigh our failures, and we make money.

But currently we don’t have the luxury of retrospect even though we are in the midst of an historic period that will eventually become part of the retrospective. Then we will be able to see which prognostications were correct. And predictions by many pundits have certainly covered the spectrum of late. From “Double Dip? Hell No” in a major financial this coming week to outright gloom from veteran market analysts at the other end of the spectrum, there has been a feast of opinion from which we can sample.

But the fact is the market remains in a defined uptrend begun just a year ago this month. The major cycle trend as measured by our long-term Timing Oscillator remains positive. After flirting with negativity for a few weeks in late January and early February, the intermediate-term Timing Oscillator has moved back into positive territory. Even the minor cycle trend, as measured by our proprietary indicator, remains positive, albeit somewhat overextended and frayed.

So we must continue to exercise our traditional disciple which dictates that we differentiate between what we “Know” and what we “Think.” And despite some indicator divergences like Cumulative Volume, we “Know” that most market barometers remain positive to the extent they have yet to demonstrate little but “internal” corrective action as prices have undergone high level consolidations before rallying upward yet again.

Of course, this action will end at some point and the we”Think” part of the equation becomes more relevant. First the minor cycle trend will turn negative, then the intermediate, and finally the major cycle. In fact, we wouldn’t be surprised to see the short-term trend that has been positive since the early February lows began to falter over the next several days. What will then become important will be whether or not that newly positive intermediate cycle will be negatively affected. If the short-term trend undergoes a shallow correct phase within the context of that positive intermediate, then we would expect to see prices rally to new highs. If not, and the intermediate cycle is threatened, longer-term vulnerabilities could then come into play.

McCurtain Most Actives Advance/Decline Line (MAAD)

While MAAD on the minor cycle rallied to a fractionally higher new high on March 11, weekly MAAD has refused to confirm that action and last remained 16 units (MAAD advances minus declines) below its peak for the move reached last August 28. Given the slightly different time cycles involved (daily vs. weekly) short-term MAAD continues to reflect the fact that Smart Money has used market strength to lighten positions. While the difference between overt negativity and the current status of MAAD is subtle, market strength since last fall has been less powerful than the rally off of the March 2009 lows when MAAD rallied decidedly higher.

So we are left with much the same outlook as we have maintained over the past several weeks: while there is no denying the next upward bias of the market since the lows a year ago, MAAD, a measurement of what large investors tend to buy and sell, remains less enthusiastic about the stock market than external prices would indicate. And while daily data in MAAD has flirted with new highs over the past couple of weeks, so long as the larger cycle weekly data remains stuck below the late August 2009 indicator highs, further market strength could be tentative. This was the case into the 2000 highs and again into the 2007 highs. While the lead time can vary from several weeks to months, so long as MAAD remains weak, history suggests prices will not advance dramatically and will ultimately move in the same direction of MAAD.

Click on charts to enlarge

McCurtain Call/Put Dollar Value Flow Line (CPFL)


NOTE: Due to a data entry error last week, CPFL was erroneously plotted at a new high and above the mid-2008 indicator resistance peak. That is not the case even though CPFL did rally to its best level since the March 2009 lows.

CPFL rallied to new short- and intermediate-term highs last week via daily and weekly data. At the same time, while the short-term CPFL ratio is decidedly “overbought,” the weekly ratio is not and was last plotted just above neutral. As a consequence, it’s possible that a market that has become overheated on the short-term could correct excesses within the context of a still viable intermediate positive. Weekly CPFL statistics could be underscoring that potential.

In any case, so long as CPFL does not diverge from major index pricing we suspect that the overall positive tone of the market, re-asserted on the upside over the past few weeks, could persist, albeit with some near-term corrective action even with the failure of MAAD to underscore the “enthusiasm.” If such selling forces the Daily CPFL Ratio back into “oversold” territory without any damaging market action, the potential for a resumption of the larger intermediate-term trend remains.

Click on charts to enlarge

Conclusion

The stock market remains positive on all cycles: minor, intermediate, and major. The minor cycle, however, is overheated and could be vulnerable. If short-term corrective action develops how it ultimately progresses will determine the staying power of the larger intermediate-term that was re-asserted in early February. New highs for the move following the February index lows could follow. At this point all of this action is developing within the context of a still positive major cycle.

In sum, the inputs for a future retrospective continue to unfold as we remain convinced of one thing: at some point we will be able to look back and see for certain which market predictions were correct.

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

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

3-19-10

9

11

3-19-10

656439

147348


*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

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

3-8-10

10

10

3-8-10

1507185

41172

3-9-10

15

5

3-9-10

89372

45511

3-10-10

15

5

3-10-10

93774

34334

3-11-10

11

7

3-11-10

47087

26732

3-12-10

5

15

3-12-10

72878

37903

3-15-10

9

10

3-15-10

172130

58620

3-16-10

16

3

3-16-10

80479

27525

3-17-10

13

6

3-17-10

276597

63778

3-18-10

6

14

3-17-10

118571

40039

3-19-10

7

13

3-19-10

189269

47595

*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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