McCurtain's Equity Index Weekly Summary

In an email last week a market crony wondered if the “Hon. Lloyd B., (Lloyd Blankfein, CEO of Goldman Sachs) might have had some second thoughts about those bonuses in ’09 ($16.9 billion worth) considering all that’s happened since then. Seems to me,” he went on, “if the ‘masters of the U’ at Goldman had taken a look around the country at the 10% unemployment rate, massive foreclosures they had some hand in stimulating, plus the general disaffection with Broad and Wall, they just might have had the wisdom to forgo bonuses and donate the money to special funds for people in a world of hurt. Can you even imagine the goodwill that would have garnered for them and WS? The SEC wouldn’t have dared go after them.”

Coulda, shoulda, woulda. … If only…. I wish…. But that’s the way of Wall Street, if not life itself. Yep, the Hon. Lloyd B., & Company could have made far better choices than taking more bucks for new co-ops, houses in the Hamptons, garish suspenders, Harry Winston diamond rings for dear Muffy, and another round of $1500 dinners for four at Per Se. Amazing isn’t it that people so obsessed with appearances don’t have a clue about how things really appear? So now comes the righteous indignation of the public after the “let them eat cake” implications, the excoriations from the press and, of course, the denials. Boesky and Milken would be proud.

Such is the nature of financial history unfolding. Looking back on J.K.Galbraith’s “The Great Crash,” we wonder how what is so “obvious” now was so opaque back in 1929. Couldn’t they see? Fast forward to 2006 and the beginning of the housing crisis and then 2007 for the beginning of the second greatest bear market. Same question? The answer. Apparently not.

And now, after nearly 14 months of a powerful advance in equities, we see stories that investors have begun to get “giddy” again. Down the Yellow Brick Road. Lions and tigers and…pigs? The “economy is at the beginning of a major advance.” Really. With housing still in the tank and the unemployment rate only slightly improved from when Lloyd B., could have really done some of “God’s work,” it seems the upside on the fundamental analysis front is being calculated from Plato’s Cave.

Unfortunately, contrary-thinking in the face of strong breadth, prices trading near new highs for the move, and buyers waiting for dips to add to positions is not the best time to flip the coin and go 100% short. But we know for a fact that the time will come. The clock continues to tick along in the background with the time continuum having something in common with every major stock market advance since the beginning of marketdom: it will end. Our job is to determine when the party is over. For the moment there are some minor rumblings on the horizon, but the old farmer won’t commit to a definitive weather forecast just yet. “Mebbe it’ll rain. Mebbe it won’t.”

The “little wheel” keeps spinning after the first nudge from the croupier over a year ago. The ball moves countertrend as is always the case. That momentum will ultimately stop and the orb will drop into its slot. That’s the point when the winners will be separated from the losers, but the losers in the market won’t know it until later. Once again, bad choices will be made. “It’s just a dip. No worries. Hold for the long term.”

McCurtain Most Actives Advance/Decline Line (MAAD)
New short (daily data) and intermediate-term (weekly data) highs were reached by MAAD last week to underscore the renewed conversion of Smart Money to a modest buy mentality after months of apparent equivocating (last August until early March). At the same time, however, while the Daily MAAD Ratio has dipped back toward “oversold” territory in the midst of an “internal” correction of the indicator, weekly Ratio stats are now as “overbought” as at any time over the past 10 years.

So we are left with a small puzzle: which of the two ratios is telling the real tale? Is MAAD suggesting the intermediate trend is approaching an endgame, or is that nearly “oversold” reading on the Daily Ratio setting the indicator up for another short-term rally that would simply be a reflection of higher market prices in established intermediate and major cycle uptrends?

Given the fact the MAAD Daily Ratio has corrected similarly more than a dozen times over the past year with higher prices following, we suspect current action could yield similar results and weekly numbers could simply push a bit higher or stay “overbought” for a time. Ultimately, it will be the ability of the market to maintain positive trends with no violation of downside supports that will be the deciding factor.

Click chart to enlarge

McCurtain Call/Put Dollar Value Flow Line (CPFL)
Massive upside Call Dollar Volume in the daily CPFL advance/decline line last Friday pushed to indicator to its best levels since the uptrend began in March 2009. Like its MAAD counterpart MAAD on the intermediate-term cycle is now as “overbought” as at any time over the past decade and the Daily CPFL Ratio is moderately overheated.

Nonetheless, so long as prices in the major market indexes continue to hold above defined price channels and key support points, the old adage that the “trend is your friend” will continue to apply, short- to intermediate-term “overbought” conditions notwithstanding.

Click chart to enlarge

Conclusion
After re-asserting the major cycle uptrend during the first several days of March, our proprietary intermediate Timing Oscillator remains positive, albeit moderately overbought on all cycles (short, intermediate, and major). The same can be said for statistics on both the short- and intermediate-term cycles in MAAD and CPFL. What it would take for us to abandon that cautiously optimistic tone would be for the short-term trend to offer up a confirmed negative via our proprietary Timing Oscillator and then for both indicator Ratios (MAAD and CPFL) to also reverse direction to the downside.

The clincher would be for the S&P to sink below defined price channel support at 1190 (1196 by the end of this week) and 10981 (11043) in the Dow Jones Industrial Average. Since the S&P remains positive on the intermediate cycle until 1111 and the Dow 30 until 10352 it’s also possible the short-term cycle could flip negative for a few weeks within the still positive intermediate cycle.

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

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

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

3-26-10

15

5

3-26-10

232614

113862

4-2-10

13

7

4-2-10

153692

138948

4-9-10

17

3

4-9-10

310430

99415

4-16-10

11

9

4-16-10

684317

282231

4-23-10

15

5

4-23-10

1049228

141637

*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

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

3-22-10

14

5

3-22-10

32251

29750

3-23-10

17

3

3-23-10

128223

27766

3-24-10

12

7

3-24-10

55275

24882

3-25-10

6

13

3-25-10

61158

45267

3-26-10

13

6

3-26-10

19788

29395

3-29-10

11

9

3-29-10

137740

105076

3-30-10

6

14

3-30-10

15633

31967

3-31-10

7

13

3-31-10

61075

42805

4-1-10

17

3

4-1-10

36215

26434

4-2-10

Holiday

4-2-10

Holiday

4-5-10

17

3

4-5-10

66102

42763

4-6-10

14

6

4-6-10

71074

26189

4-7-10

8

11

4-7-10

63920

36679

4-8-10

15

5

4-8-10

74032

22170

4-9-10

13

7

4-9-10

51056

38095

4-12-10

19

1

4-12-10

167776

34077

4-13-10

7

12

4-13-10

96123

32036

4-14-10

15

3

4-14-10

177119

27271

4-15-10

9

10

4-15-10

142310

41992

4-16-10

2

18

4-16-10

295642

140482

4-19-10

10

10

4-19-10

88196

42859

4-20-10

13

7

4-20-10

44729

35845

4-21-10

7

13

4-21-10

24734

48409

4-22-10

7

13

4-22-10

191965

48573

4-23-10

12

8

4-23-10

739177

32764

*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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