Stock market to new highs for move...

...but TseTse flies uncertain

A stock market adage has it that the performance of equities during the first day of trading in January predicts performance over the balance of the year. There have been other predictive methodologies like the Super Bowl indicator that suggests a win from a team that can trace its origins back to the old NFL is bullish for the stock market. And AFL win, however, would not bode well for stocks. Proponents of the theory claim a win record of about 80%. For our money, however, it’s that other 20% we wonder about. As a consequence, whether predictions for the stock market have to do with how equities perform during the first day of the year, the victor of the Super Bowl, or whether Canadian Geese are flying north a few weeks early this spring along with a host of errant TseTse flies, it’s a sure thing the market will continue to astound.

Birds, bugs, and the gridiron aside, stocks got off to a good start in 2011 with a strong up day during the first session and on the week as trading activity quickly returned to pre-holiday levels. The S&P 500 Index was ahead 1.1% with the Dow Jones Industrial Average adding just under 1%. The NASDAQ Composite index was the winner on the week with a gain of nearly 2% while the Value Line Index posted the smallest again at .6%. In fact, the VAY hit its new high for the move on January 3 and demonstrated some intraweek weakness by sinking to its lowest intraday level (2853.94) since December 20. Since some market followers believe the Value Line is a better measure of “the market” than even the S&P 500 since VAY encompasses nearly 1700 stocks, its weakness last week is a short-term concern. Nonetheless, the S&P, the Dow, and the NASDAQ posted new highs and their best levels since March 2009.

Also on the positive front, both CPFL and MAAD confirmed market strength by rallying to new highs for the move. While MAAD strength on the smallest Daily Cycle was somewhat belated relative to weekly data, both measurements of the so-called “Smart Money” crowd are now on board to the extent that neither has set up a negative divergence to suggest impending market weakness.

We would not be surprised to see a short-term pullback develop at any time, however. Upside Momentum that turned positive following the late November price lows has been faltering in the S&P since December 16, in the Dow since December 15, and in both the NASDAQ and the VAY since December 10. On the Intermediate Cycle, Momentum has yet to better its highs in the S&P and the Dow since the week ending November 19, in the NASDAQ since November 12, and in the VAY since December 10. On the Major Cycle all four major indexes put in place a Momentum peaks back on March 31, 2010.

We must also note the continuing failure of Cumulative Volume which has yet to surpass its late April plot highs in any of the major indexes. That failure suggests strength since then has been fueled by weaker players than those who propelled the market higher following the March 2009 lows and through the Interim highs in late April. Put another way, while prices have moved marginally above the April price levels, CV has not.

On another front, all cycles, Short, Intermediate, and Major are “Overbought” since they are currently plotted at levels which have, on an historic basis, preceded market weakness. History has also demonstrated that “Overbought” levels can persist, especially if the uptrend is strong. In fact, there is no denying the tendency toward higher prices since the July lows, indicator detractions notwithstanding.

In sum, the market got off to a decent start during the first week of the New Year. New highs and the best levels for the rally that began in March 2009 have been made. Two of our key indicators, CPFL and MAAD, have confirmed market strength by also rallying to new plot highs. Neither indicator has demonstrated any overt negative divergences except that MAAD has not performed as well over the past 22 months as during previous bull moves. But with negative Momentum, weak Cumulative Volume, and Overbought readings persisting on all cycles, we continue to wonder at the staying power of this uptrend on all cycles. Despite our doubts, however, price will remain the ultimate arbiter.

Index Daily Stops Weekly Stop Monthly Stop
1/10 1/11 1/12 1/13 1/14 1/14 1/31
S&P 1255.31 1256.98 1258.76 1261.18 1261.72 1182.65 1057.31
Dow 30 11544.79 11564.32 11583.45 11602.06 11605.81 11054.14 9975.71
NASDAQ 2660.33 2661.47 2663.58 2670.11 2672.18 2491.93 2146.66
Val. Line 2872.28 2870.00 2869.40 2872.79 2869.00 2632.06 2232.03

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 on the smallest Daily Cycle has moved into line with the larger Weekly Cycle by posting a new high and its best plot level last week since the longer-term uptrend began in the spring of 2009. While Daily MAAD strength has been delayed and the current new high is nothing stellar, there is now joint confirmation of the uptrend.

Put another way, while the indicator has yet to recover even a quarter of its losses since the October 2007 bull market highs, there is still life in MAAD relative to the longer-term trend. And while MAAD, as a reflection of Smart Money intentions, continues to look anemic on an historical basis, its current bias simply underscores the suggestion that the market remains more positive than negative.

Click charts to enlarge

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