Weak stock buyers behind December bull run

Pale bulls, not eight tiny reindeer, probably lifted last week’s market

Despite clarion calls from that Jolly old elf and his exhortations to Dasher, Dancer, Prancer, Vixen, Comet, Cupid. Donner, and Blixen, all of which could be code names for a host of new IPOs, it was probably anemic bulls who drove last week’s stock market prices marginally higher. Underscoring the market’s pallidity, the S&P 500 Index, the Dow Jones Industrial Average, the NASDAQ Composite, and the Value Line Index all eked out gains of about 1% to trade at their best levels since the uptrend began in March 2009.

And while we know the groove in our broken record which continues to play the poor performance "Cumulative Volume Song" may be wearing a bit thin, the truth is, Cumulative Volume remains weak across the board for the major indexes. Not only has CV in the S&P, the Dow, and the NASDAQ Composite failed to better plot highs put in place in early November, but that data is nowhere near bettering the indicator highs made in late April.

In addition, Minor, Intermediate, and Major Cycles are now as statistically overheated as at any important market top over the past 20 years. Admittedly, however, "overbought" can stay that way in a powerful uptrend even if it ultimately proves to be a countertrend rally. And there is certainly no doubt that the uptrend initiated in the spring of 2009 has been a powerful. "Besides," some might say, "I’ve made a fortune in Netflix and some of the double long S&P ETFs."

Good point. The problem is that the "what happens next" part of the equation could determine for some time whether or not longs will be given new opportunities to go, well, long. If it turns out that strength since March 2009 proves to be nothing but a powerful countertrend move within the context of an even more powerful bear market that may have begun in March 2000, the next profit opportunities could prove to be on the downside. And as a general rule folks tending toward the long side of the market historically do not do well in bear trends.

As we suggested in our Market Summary on December 3, we could see the S&P work higher toward 1325 with the Dow to 11900 and the upper edge of long-term price channels to fulfill upside "requirements" in the rebound move. But of course, there is no promise such levels would be realized. In fact, with that pesky Cumulative Volume continuing to suggest that weak players have been driving market prices higher since the July lows, this market could stall anywhere between "here" and "there." Technical analysis jargon suggests there is price pattern called a "delayed ending" in which prices stage yet another move, in this case to higher highs, while the bulk of the market’s internal indicators fail to "confirm" that strength. In other words, since the market may be in the last stages of the advance, a last gasp rally is called a "delayed ending." This current market could be exhibiting one of those price tendencies.

Nonetheless, rising prices do not a bear market make, up volume or not. And until first the Minor Cycle trend turns negative and then the larger Intermediate Cycle trend that has been underway for the better part of the past six months, the currently positive Major Cycle can only threaten negativity.

Index Daily Stops Weekly Stop Monthly Stop
12/27 12/28 12/29 12/30 12/31 12/31 12/31
S&P 1235.98 1238.98 1242.51 1245.24 1248.50 1170.12 1061.14
Dow 30 11418.38 11433.23 11454.89 11475.53 11495.80 10979.75 9978.80
NASDAQ 2621.71 2629.04 2637.25 2643.13 2650.25 2452.77 2154.04
Val. Line 2814.99 2824.20 2835.67 2444.78 2854.10 2580.17 2228.83

Note: Stop levels based on the trailing moving average price channels for the Highs or the Lows of an index presumes a continuation of recent market momentum and volatility. Stop levels should only be used as an entry or exit guide and in conjunction with other market strategies

McCurtain Most Actives Advance/Decline Line (MAAD)

MAAD based on Weekly data and reflecting the larger Intermediate Cycle turned higher last week and made the best plots since the bull trend began in March 2009. Daily MAAD data, however, did not make a new high with the series while continuing to hold below the daily indicator plot highs made back on April 14. While it wouldn’t take much market strength for daily MAAD data to make new highs, the fact the daily series has not yet made that move is a concern.

In addition, we must continue to note that while MAAD has trended higher since those spring 2009 market lows, the indicator has recovered less than 25% of the ground it lost following the October 2007 bull market highs. Given that lack of indicator "enthusiasm" and that fact that MAAD tends to reflect the eagerness, or lack of it, of the so-called Smart Money crowd to own equities, we can only continue to wonder what would happen if this market makes a high and caps the rally begun 22 months ago without that MAAD participation. It now seems obvious that it wouldn’t take much concerted selling to drive MAAD to new lows below the March 2009 levels with such movement underscoring the potential for further negative market action thereafter.

Click chart to enlarge

McCurtain Call/Put Dollar Value Flow Line (CPFL)

Index options buying as reflected by CPFL made new highs for the move on both the Daily and Weekly Cycles last week. And while the Weekly CPFL Ratio is now as "overbought" as at any time over the past 20 years, as we’ve noted before, upside statistical extremes can remain that way for extended periods. In fact, a slight diminishment in momentum can cause "overbought" readings to self correct and "reset" for another advance.

Nonetheless, options players have a history of being fickle and if they get a whiff of market vulnerability the net buying of index options could quickly turn to net selling. CPFL would reflect that tendency.

Click charts to enlarge

Conclusion

Last week’s marginal market gains were most likely spurred higher by feeble bulls trying to maintain holiday cheer rather than by eight tiny and volume light reindeer when most investors were on holiday. Wherever the truth lies, we believe that the longer-term dynamism of a bull trend cannot be sustained by weak players. The same is true of the latter stages of a bear cycle.

But as we noted earlier, until we see this house of cards begins to fall in earnest with first a negative on the Minor Cycle and then a downturn on the Intermediate Trend, we can only suggest progressively higher trailing Stop Sell levels on the three cycles as this market moves to its denouement.

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

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

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

12-10-10

15

5

12-10-10

395991

42814

12-17-10

9

11

12-17-10

441634

61008

12-24-10

17

3

12-24-10

177600

88159



*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

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

11-25-10

Holiday

11-25-10

Holiday

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

12-6-10

8

11

12-6-10

40933

17375

12-7-10

8

12

12-7-10

80650

30593

12-8-10

13

7

12-8-10

50397

15116

12-9-10

15

5

12-9-10

108582

14892

12-10-10

13

7

12-10-10

72621

16651

12-13-10

9

11

12-13-10

283329

35410

12-14-10

6

14

12-14-10

40676

17570

12-15-10

8

12

12-15-10

96633

33646

12-16-10

11

9

12-16-10

40412

30436

12-17-10

10

9

12-17-10

91895

20598

12-20-10

15

3

12-20-10

98065

26159

12-21-10

18

2

12-21-10

19915

33054

12-22-10

13

6

12-22-10

17751

17000

12-23-10

3

16

12-23-10

52317

31245

12-24-10

Holiday

12-24-10

Holiday

**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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