Stock market surging, aiming for new highs

And now we have a partial score: New York Giants, 16

You’ve seen one of those mid-game commentaries where a coach or a player is asked what it it’s going to take to "win the game." One of our favorite answers, apropos of the current football season, goes something like, "We’ve got to move the ball forward and put up some points of the board." Anyone hear a pin drop?

But on the other hand, we say to ourselves, "Well, OK, Sherlock, isn’t that exactly the kind of thing you’ve been saying for weeks? "To keep those profits building we have to be on the right side of the market that has to keep making new highs."

Hooray for analysis! Touchdown!

So, backtracking into our cocoon of humility, we are again left with our shopworn mantra that requires the market to make new highs if the uptrend begun in March 2009 is to remain viable.

Last week that positive theme gained yardage when the S&P 500 Index rallied 35.31 to close out the week at 1224.71 for a positive of just under 3%. The Dow Jones industrial Average was up over 290 points for a boost of 2.6%. Neither point gain was good enough, however, to make new highs above the November 5 short-term peaks and the best levels since March 2009 at 1227.08—S&P and 11451.53—Dow 30. But on a bullish note, eager beavers trading the S&P Emini pushed that widely traded futures contract to new highs, a suggestion it may only be a matter of time before the S&P and the Dow follow suit.

Underscoring the week’s positive gains, our options-based Call/Put Dollar Value Advance/Decline Line (CPFL) rallied to new highs via both Daily and Weekly data for the seventh week in a row to indicate that options sentiment remains positive. At the same time, our Most Actives Advance/Decline Line (MAAD) rallied sharply on the Daily Cycle even though the indicator on that lesser trend must better the statistical highs reached back on April 14 to also create new highs. While such action is possible, the fact MAAD has faltered on that smaller trend is an indication Smart Money continues to view the market with some skepticism.

Nonetheless, regardless of some Christmas Grinchdom here and there, this market does look like it wants to go higher. And we rather suspect it will. But how much higher?

One measurement with some diagnostic potential suggests that those lows in July were the "Head" of a Head of a Head and Shoulders bottom formation with the Left Shoulder created in May and the Right Shoulder in August. The Neckline in the S&P was plotted near 1130 with a projected upside target (difference from the Neckline to the H&S low added onto the Neckline) projecting to about 1250. On the Dow 30 a similar target projects to about 11650. On another front, long-term price channels indicate significant resistance in the S&P toward 1325 and in the Dow toward 11900. So we are left with an upside target range of from 1130 to 1325 in the S&P and from 11650 to 11900 in the Dow. Those levels will be refined later.

There is one other area we’ve mentioned before that bears consideration: Volume. As prices have re-approached and teased while selectively bettering the late April price highs, Cumulative Volume has not. Not only has CV in both the S&P and the Dow failed to make new highs, but volume in both indexes has only recovered about 50% of the losses since April. Clearly, buyers have been less enthused about gains since July than during the rally from the lows in February through April. While there is no denying that prices can rise on decreasing activity, history suggests that such action can be indicative of weaker players driving prices higher and will be, as a consequence, unsustainable.

In the meantime, "To keep those profits building, folks, we have to be on the right side of the market that has to keep making new highs." Or go tune in to some gridiron analysis.

McCurtain Most Actives Advance/Decline Line (MAAD)

MAAD on both the Daily and Weekly Cycles recovered recent, short-term statistical losses last week. But neither series has yet to make new highs even though MAAD on the Weekly Cycle reached its best levels since March 2009 the week ending November 5. The smaller cycle Daily MAAD peaked back on April 14 and has yet to better that level.

So long as there is a disparity between the two cycles to the extent that one makes a new high while the other fails to confirm, there is a suggestion some distribution is developing on the smaller, and more sensitive Daily Cycle.

The fact both time series have failed to perform to the same extent as the broad market over the past 21 months is a bothersome indication some folks in the Smart Money crowd remain skeptical of this market. Their activities could be a suggestion strength since March 2009 could prove to be nothing more than a bear market retracement in the decline that began in October 2007.

Click charts to enlarge

McCurtain Call/Put Dollar Value Flow Line (CPFL)

Options players continue to remain excited about this market. Not only did Daily and Weekly CPFL data rally last week, but both time series finished at their best levels since March 2009. In addition, while the larger Weekly CPFL Ratio looks overheated, the smaller Daily Ratio is still "oversold" to hint that further gains on the short-term trend could occur within the context of a still positive intermediate advance, albeit somewhat "overbought."

Nonetheless, so long as options players continue to demonstrate a willingness to buy as reflected in Dollar Value statistics, we suspect there is the potential for higher market prices.

Click charts to enlarge

Conclusion

Further price gains in the major indexes last week all but erased price retracements over the past month. While the S&P 500 Index and the Dow Industrials continue to toy which the highs reached in early November (1227.08—S&P and 11451.53—Dow 30), we suspect both bellwethers will soon rally to their best levels since the March 2009 lows.

Lest we become overly enthusiastic over the potential for gains in the weeks ahead, it is worth noting that prices have been rallying on low volume and so-so Momentum since July. At the same time, the longer of the two the Major Cycle "half-span" moving averages (see Market Summary for week ending November 12, 2010) on the longest cycle continues to decline toward a potential "intersection" sometime within the next several months. That bias could be an indication the next Intermediate Cycle high could turn out to be the best level for the rally since March 2009.

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

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

5-14-10

14

6

5-14-10

263151

730414

5-21-10

5

15

5-21-10

1172844

1654053

5-28-10

10

10

5-28-10

477797

584893

6-4-10

5

15

6-4-10

265339

515370

6-11-10

12

8

6-11-10

263791

544655

6-18-10

11

9

6-18-10

357965

119532

6-25-10

5

15

6-25-10

91068

599114

7-2-10

4

16

7-2-10

1034509

771231

7-9-10

18

2

7-9-10

635690

110808

7-16-10

9

11

7-16-10

171633

445073

7-23-10

16

4

7-23-10

322870

174663

7-30-10

15

5

7-30-10

199970

217368

8-6-10

15

5

8-6-10

271701

115037

8-13-10

3

16

8-13-10

132060

409972

8-20-10

8

12

8-20-10

176830

488032

8-27-10

6

14

8-27-10

207995

222943

9-3-10

17

3

9-3-10

488323

102016

9-10-10

12

7

9-10-10

287697

82863

9-17-10

15

5

9-17-10

289703

112410

9-24-10

12

8

9-24-10

209124

100570

10-1-10

9

11

10-1-10

145020

121894

10-8-10

14

6

10-8-10

394156

98483

10-15-10

10

10

10-15-10

476975

115923

10-22-10

11

9

10-22-10

2575024

116468

10-29-10

10

10

10-29-10

376133

120924

11-5-10

13

7

11-5-10

547056

71345

11-12-10

5

15

11-12-10

203906

305387

11-19-10

7

13

11-19-10

241420

143672

11-26-10

5

15

11-26-10

116916

149196

12-3-10

16

4

12-3-10

701973

55878



*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

10-22-10

8

10

10-22-10

20998

20664

10-25-10

11

9

10-25-10

17826

36728

10-26-10

11

8

10-26-10

18462

22227

10-27-10

10

9

10-27-10

39486

23322

10-28-10

8

11

10-28-10

187396

20725

10-29-10

8

11

10-29-10

19943

32281

11-1-10

10

8

11-1-10

32748

43173

11-2-10

8

11

11-2-10

53000

26682

11-3-10

12

7

11-3-10

51603

27749

11-4-10

14

6

11-4-10

178789

37602

11-5-10

10

10

11-5-10

170900

27121

11-8-10

12

8

11-8-10

68863

17326

11-9-10

5

15

11-9-10

169694

45289

11-10-10

11

9

11-10-10

42694

33514

11-11-10

8

12

11-11-10

37089

30380

11-12-10

4

15

11-12-10

30639

94150

11-15-10

11

9

11-15-10

84443

47402

11-16-10

3

17

11-16-10

43071

180668

11-17-10

6

14

11-17-10

20420

78711

11-18-10

16

4

11-18-10

52596

35984

11-19-10

8

11

11-19-10

77047

28454

11-22-10

6

14

11-22-10

40764

46671

11-23-10

4

16

11-23-10

36998

63173

11-24-10

15

5

11-24-10

59261

23407

11-26-10

6

14

11-26-10

7371

22639

11-29-10

11

8

11-29-10

134852

34060

11-30-10

7

13

11-30-10

33479

24500

12-1-10

16

4

12-1-10

85253

28247

12-2-10

15

5

12-2-10

182715

28232

12-3-10

17

3

12-3-10

115848

24527

**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, read a Futures article on the concept. This will take you to the MAAD article. Robert can be reached at traderbob@nyc.rr.com.

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