So let’s clarify. You go to your stock broker wanting to invest some big bucks. The broker sells you XYZ. And while the broker doesn’t represent the stock as being a good or bad investment, and despite that old caveat emptor thing, you presume (poor you) that if there is something inherently wrong with the stock, the broker will tell you. In other words, you think (silly you) that the broker has done his due diligence on the security.
Nope and nada. Turns out that not only did the broker sell you a stock that was on the edge of financial oblivion, but he was also shorting the entire group of stocks of which the stock you just bought was a part. Some might call this kind of thing double dealing. Others, like the folks at Goldman Sachs, might say, “I have no recollection….”
And now that the expletive deleted has hit the fan, one of the patron saints of the firm where you bought the stock steps forward and says he has “every confidence” in the leadership of the chairman of that firm. Yep. Turns out that saint just happens to have five billion big ones invested in that company’s stock. No conflict there, folks.
At what point does someone insert the phrase “moral culpability”?
Then there’s the EU’s Greece and Spain and who knows which other European sovereign entity that is about to lose traction and head into the vortex. But that’s the way it goes when folks have $48 to pay a $50 tab and can’t seem to figure out how they got into the mess in the first place. So turn on the printing presses and kick the bill down the road already.
Adding insult to injury, that annoying sucking sound that is more than the kid next door fixating on a pacifier was the market demonstrating some cracks in the two-month-old rally last week to suggest that the short-term cycle begun after those February lows may have finally ended. Naturally, the big question will be whether or not short-term negativity might morph into something bigger. Since the larger intermediate and major cycle trends remain intact, we must presume for the moment that any minor cycle pullback that could last for a few weeks could turn out to be nothing but a brief pullback within the context of those larger positive cycles, something on the order of the June/July 2009 and late January/early February 2010 corrections..
But there are a few concerns. First, while the economy has keyed off of the stock market which always leads, up or down, the rate of economic improvement has been lukewarm. That tepid tone could explain why gold, the ultimate safe haven, continues to hold toward all-time highs and could make new highs without much upside effort. Second, while market breadth over the past year has remained favorable, we continue to note the lack of enthusiastic upside commitment as measured by Cumulative Volume and our Most Actives Advance/Decline Line (MAAD), the latter a good historical measurement of Smart Money. Third, while there will be more horror stories that will allow the media to fixate on the next round of Wall Street blunders, complete with hubris, arrogance, and greed, we wonder at the lack of really good news after more than a year of “recovery.” While, admittedly, we do not use such information to make market-timing decisions, anecdotal evidence can be useful to establish market “tone.” Remember the one about the analyst into the 2000 highs who was quoted as saying Amazon.com was heading to 400? Uh-huh. And last, what’s with interest rates? If the economy is doing so well why aren’t rates going higher? Is loan demand still that putrid? If so, that doesn’t say much for the recovery. It’s a conundrum.
So we’re left with glittering market gossip best suited for congressional hearings, stalwart prosecutors, and late night comedy hosts, anecdotal bits and pieces of finance, and all within the context of a market that remains largely positive, but unimpressive. It is in this kind of environment where blasé’ investor sentiment can precede a major turning point. As a consequence, as more time is used up and each cycle moves toward maturation, it will become increasingly important that any negative divergences that develop are fully noted, the Three Stooges or Lloyd B. & Company aside.
McCurtain Most Actives Advance/Decline Line (MAAD)
The Most Actives Advance/Decline Line (MAAD) hit a short-term peak on April 14 and has not revisited that level since then. At the same time the Daily MAAD Ratio has moved progressively lower from a statistical peak in the oscillator on April 15 to currently and deeply “oversold” levels. Given that oversold condition on the short-term cycle, it’s possible that the market won’t have a lot of downside selling power if a correction develops further.
On the larger intermediate cycle, while MAAD perked to its best levels the week ending April 9 and the highest since the March 2009 lows, relative to overall market performance the past year, MAAD has quite simply been unimpressive on the upside. On that same intermediate cycle the Weekly MAAD Ratio is now as overbought as at any time during the past 10 years.
So we are left with the possibility that MAAD could allow for a short-term rally from deeply oversold levels after a brief market correction, but the ability of the indicator and the market to re-assert the larger uptrend will be largely dependent on new buyers. In other words, at this juncture in the market cycle, it is very important that MAAD makes new highs with the market if the larger cycle uptrend is re-asserted.
Click charts to enlarge.
McCurtain Call/Put Dollar Value Flow Line (CPFL)
CPFL data on the short-term cycle weakened a bit last week following the creation of a new short-term high in CPFL on April 26. At the same time the Daily CPFL Ratio, like its MAAD counterpart, worked lower toward “oversold” territory while the Weekly CPFL Ratio remains positive and as “overbought” as at any time since 1983.
Nonetheless, while options players have moved somewhat more to the sell side over the past week on a Dollar Value basis, the defined uptrend in CPFL on both the short-term daily cycle and the intermediate-term weekly cycle remain positive. As a consequence, from here on it will become increasingly important to monitor how much damage the indicator sustains as that damage relates to the larger cycles.
Click charts to enlarge.
Conclusion
Broad market weakness and two sharp down days last week raised the red flag of caution on the minor cycle. Weakness last week below defined 10-day price channel supports by both bellwether indexes was probably the death knell of the uptrend that began after the February lows. Underscoring that negative tone, both MAAD and CPFL gave ground on the smaller cycle, but weakness is developing within the context of what still look like favorable intermediate (weekly data) and major (monthly data) cycle trends. In fact, over the next week the S&P 500 index could sink as far as 1123 with the Dow 30 dropping as far as 10460 without the larger intermediate-term cycle turning negative.
If it turns out that the market weakens further, perhaps for days to the next few weeks, in a small corrective phase, it will be critically important to the longer-term trends that new highs by prices and indicators are reached once the correction is over. An upside failure with coincident negative divergences by our key indicators would not be a good sign.
MAAD data for past 30 Weeks* CPFL data for past 30 Weeks
|
Date |
NYSE Adv |
NYSE Dec |
Date |
OEX Call $Volume |
OEX Put $Volume | |
|
10-9-09 |
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 | |
|
4-30-10 |
2 |
18 |
4-30-10 |
139488 |
363448 |
*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 |
|
3-19-10 |
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 |
|
4-26-10 |
10 |
10 |
4-26-10 |
62430 |
39865 |
|
4-27-10 |
3 |
17 |
4-27-10 |
63683 |
270410 |
|
4-28-10 |
13 |
7 |
4-28-10 |
9375 |
81124 |
|
4-29-10 |
12 |
8 |
4-29-10 |
32945 |
31353 |
|
4-30-10 |
2 |
18 |
4-30-10 |
32835 |
174894 |
*Note: Unchanged issues are not counted.
Robert McCurtain is a technical analyst, market timer and private investor based in New York City. If you would like to read more about how the CPFL is constructed, click here to read a Futures article on the concept. For the MAAD, click here. Robert can be reached at traderbob@nyc.rr.com.
