Market reports of bull's death appear exaggerated

On the flip side, however, while our Most Actives Advance/Decline Line (MAAD) made a new high on the Weekly Cycle back on January 14 with the Daily Cycle hitting on a new high on February 1 before falling back, that indicator continues to reflect the fact that the Smart Money crowd, despite the remarkable gains in some sectors, has been less enamored of equities over the past 23 months than at other times in stock market history.

In sum, while the short-term trend that began after the early December lows seems to have re-asserted itself via small gains last week, it remains to be seen how much further the broad market indexes will carry on the upside before a more meaningful correction develops. But we do know, for a fact, that while "overbought" conditions can persist longer than many market participants might think, it is a certainty that the time will come when those conditions will unravel. This market will prove to be no exception to that rule. It is also a fact that the time will come in the not-too-distant when selling on the Short-term Cycle will prove to be a solid and tradable down move and not an elusive bear trap. This market will also prove to be no exception to either rule.

Index Daily Stops Weekly Monthly
2/7 2/8 2/9 2/10 2/11 2/11 2/28

S&P

Last
1310.87

SELL
1282.34

SELL
1283.57

SELL
1287.26

SELL
1289.11

SELL
1291.78

SELL
1225.08

SELL
1054.96

Dow 30

Last
12092.15

SELL
11864.49

SELL
11872.84

SELL
11902.03

SELL
11920.40

SELL
11942.61

SELL
11339.73

SELL
9977.84

NASDAQ

Last
2769.30

SELL
2699.08

SELL
2701.43

SELL
2709.22

SELL
2713.26

SELL
2720.61

SELL
2592.31

SELL
2145.96

Val. Line

Last
2957.84

SELL
2886.11

SELL
2889.08

SELL
2897.73

SELL
2901.91

SELL
2909.69

SELL
2774.04

SELL
2241.20



Note: Stop levels, a function of the extant trend, are based on the trailing moving average price channels for the Highs or the Lows of an index. Whether or not a specific index is suggesting a "Buy" or Sell" is determined by whether or not index prices are above or below the current channel Stop levels. Stop levels should only be used as an entry or exit guide and in conjunction with other market entry and exit strategies.

McCurtain Most Actives Advance/Decline Line (MAAD)

MAAD rallied to a new short-term high last week using Daily data. But once that peak was reach on Monday, February 1, the indicator was unable to better that plot level, despite marginal buying and new highs in the major market indexes. At the same time, after peaking back on January 14, MAAD on the Weekly Cycle has been unable to better its best point for the move initiated in March 2009.

While the divergences on both cycles are currently of little significance, given the small duration of the variance, if MAAD persists in failing to confirm market action on the upside if more strength develops, such a disparity would be classic since MAAD has had an historical tendency to lead the market into tops. It generally tends to peak anywhere from one to three weeks before the market enters into a measurable corrective phase.

Click charts to enlarge

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