Stock market minor cycle dicey

Or second, the short-term weakens further, the uptrend line stretching back toward those August retest lows is terminated, and the Intermediate-term Cycle in effect since early July is challenged. In this case we would look for a possible test of Intermediate-term statistical supports toward defined 10-week Price Channels (see Table Below), but not a termination of the Intermediate-term advance itself.

Or third, more concerted selling develops and not only is the Intermediate Cycle challenged, but the uptrend that began last July is ended, albeit within the context of a still positive Major Cycle advance that would allow price weakness to the lower edge of defined 10-Month Price Channels (See Table below).

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)
Last week Daily and Weekly MAAD data were unable to better their February 17 and 18 highs and the best levels since March 2009. But given the limited nature of selling, so far, in the broad market over the past several days and the somewhat anemic reaction of this indicator to weakness and the fact the Daily MAAD Ratio has already dipped into "oversold" territory, it’s possible that selling could prove to be relatively short lived even if bids progress somewhat below last Thursday’s lows.

We must continue to point out, however, and this has been one of our pet themes for months, that MAAD relative to broad market action has not done as well since March 2009 as in previous market up moves. While there may be many reasons as to why the so-called "Smart Money" has been less enthusiastic that previously, the fact is that it has. Put another way, it would take far less market weakness to push MAAD down to new lows than it would index prices unless there was catastrophic selling, an eventuality that does not seem likely at this time.

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McCurtain Call/Put Dollar Value Flow Line (CPFL)
Despite selling in the major indexes last week, CPFL rallied to new highs for the move on both the Daily and Weekly Cycles to suggest that options players remain optimistic. While this divergence from price action does not preclude more weakness in the broad market, it does suggest that the lack of a defined upside disparity could accrue to the benefit of the bulls on the short-term in that any weakness which develops could be of short-term term duration and could prove to be a buying opportunity.

If, however, CPFL begins to weaken in conjunction with market prices and then fails to stage a rebound once an interim price low is made, at that point we would begin to worry that the larger cycles could be in jeopardy since option players have had a tendency to "fade" larger cycle highs in preparation for more sustained declines.

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Conclusion
While last week’s downdraft which resulted in losses of 1.7% in the S&P 500, 2.1% in the Dow 30, 1.8% in the NASDAQ, and 1.9% in the Value Line Index could be the beginning of a larger cycle decline, we doubt it. If that prognosis proves to be overly optimistic and prices decline below defined Intermediate-term uptrends that stretch back to the late August re-test lows, we would then look toward Intermediate-term Price Channel supports while assuming that near-term weakness would not terminate the Intermediate-term uptrend.

Following such a smaller cycle pullback, however, prices would have to rally to new highs with indicator confirmation. If prices rallied, but did not make new highs and there was notable deterioration on the indicator front, we would then have to seriously consider that the eight-month-old rally is over, but probably within the context of a still positive Major Cycle trend.

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

*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

**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.