Stock market shows off its roller coaster moves

Since February 20 the S&P 500 index has experienced four sharp intraday movements ranging from 40 to 50 points including two rallies and two declines. The index was last about one-half way through the range of that volatility while still exhibiting indecision on the Minor Cycle.

Coming with those gyrations we recall the proverbial "roller coaster ride" and the famous Coney Island Cyclone, a New York City landmark. The Cyclone opened on June 26, 1927 for a ride cost of 25 cents and just two years before the Great Crash of October 1929 when stock market investors suffered the effects of a real roller coaster ride. In the 80-year history of the Cyclone, only one person has ever died of injuries caused by the ride. Unfortunately, the same cannot be said for the stock market.

The famed Cyclone roller coaster is still active in Coney Island, N.Y. (Photo credit: Wikipedia)

Even though stock market roller coaster rides, big and small cycles included, are exciting, they are linear, not circular like the Cyclone where a rider knows for certain that the ride will repeat the same way each time. While the stock market investor can anticipate that all tops will be followed by some degree of selling and all lows will be followed by some degree of buying, he never knows precisely where the change will occur or what its duration will be. Such action is highly dependent on the cyclicality of the market and the power of Momentum, Volume, and investor expectations which drive the market prices.

Such is the case currently. While we know that the Major Cycle has experienced a powerful rally that began in March 2009 while the Intermediate Cycle put in a place a low and has been rallying since last July, the Short-term Cycle is currently a toss up. Some statistics like Momentum and one of two oscillators in our Timing Model are now negative and prices continue to hover below defined 10-day Price Channels. As a consequence, the market is still vulnerable on the smaller trend. But with the larger Intermediate and Major Cycles still holding positive, it’s possible recent market hesitation could prove to be a brief lull much like the small drawdown that began early last November that lasted about a month before the December short-term lows.

With CPFL and MAAD not far from new highs and the best levels reached since March 2009 and with Intermediate-term upside measured move targets we suggested as possible targets a few weeks ago still possible (1360-1389—S&P 500, 12444-12766—Dow 30, 2953-2991—NASDAQ, and 3107-3150—Value Line), lacking further evidence and so long as Intermediate Cycle Price Channels are not hit on the downside (see Table below), we cannot rule out the possibility current market hesitation and intraday volatility could be resolved on the upside. Such action would develop within the context of the still positive Intermediate Cycle trend that remains favorable within the context of the still positive Major Cycle trend.

But contradictions remain. While Major Cycle Momentum and Cumulative Volume (see CV chart below) both hit highs in April 2010, neither indicator has yet to surpass those April 2010 levels, despite strength in the major indexes above those highs since then. Those failures suggest that not only has the upside impetus of the market been faltering, but upside participation has also been diminishing. From a longer-term perspective those divergences are not good omens.

Click chart to enlarge

So, like the Cyclone riders at Coney Island who out of instinct hold on tight at the crest of each ride high they can see looming, because they see a big down just ahead, we will also hold on tight in the sessions just ahead with a finger on the SELL button because we know what a serious decline feels like. We choose prudence and money management rules over mere hope that the rally will continue higher even though the market could still allow for such an eventuality.
Index

Daily Stops

Weekly Monthly
3/7 3/8 3/9 3/10 3/11 3/11 3/31

S&P

Last
1321.15

%Chg
+1.05

BUY
1327.61

BUY
1327.98

BUY
1325.03

BUY
1325.67

BUY
1326.19

SELL
1260.48

SELL
1067.15

Dow 30

Last
12169.88

%Chg
+.30

BUY
12303.06

BUY
12323.45

BUY
12309.50

BUY
12279.24

BUY
12255.14

SELL
11744.97

SELL
9977.84

NASDAQ

Last
2784.67

%Chg
+.10

BUY
2821.17

BUY
2820.27

BUY
2810.71

BUY
2798.80

BUY
2794.39

SELL
2713.76

SELL
2145.96

Val. Line

Last
3011.25

%Chg
+1.90

BUY
3039.85

BUY
3043.33

BUY
3036.19

BUY
3024.12

BUY
3020.28

SELL
2908.12

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 hit a new high for the move on the Weekly Cycle on February 18 and tapped out a fractionally higher high to a new peak on the Daily Cycle last Thursday. The Daily MAAD Ratio has been working lower toward "Oversold" territory over the past few weeks, but the larger Weekly MAAD Ratio was last moderately "Overbought." Taken together, there is the potential for some near-term improvement in the market but we cannot rule out the possibility the indicator could get even more "oversold" on a resumption of market weakness. Such action would develop within the context of a moderately overheated Weekly MAAD Ratio which remains somewhat vulnerable.

Underscoring all MAAD action, however, is the fact that the indicator has underperformed the broad market for the better part of the past two years to suggest that Smart Money has remained less enthusiastic about the uptrend since March 2009 than in earlier uptrends.

Click charts to enlarge

McCurtain Call/Put Dollar Value Flow Line (CPFL)

After hitting new highs for the move using Daily data on February 25 and also for the week ending February 25 via Weekly data, CPFL has been working in tandem with the broad market and has been unable to better those highs. But the indicator has also appeared reluctant to give much ground on the downside. As a consequence, it appears options players remain optimistic about the market’s upside prospects, short-term hesitation notwithstanding.

As we have mentioned before, lacking any significant negative divergences between CPFL on both the Daily and Weekly Cycles, we must presume that a larger cycle decline is not yet imminent.

Click charts to enlarge

Conclusion

The broad market indexes closed last week with small gains, but strength may prove to be mere "return action" within the context on an ongoing pullback that peaked back on February 18. While it remains to be seen just how much longer the current hesitation will last before a short-term low is put in place, we do know that the extent of this pullback and to what extent it will determine the staying power of the larger Intermediate-term trend.

A resumption of concerted weakness would almost certainly challenge the uptrend begun after last July’s lows while more price consolidation not far from current levels could mean that the bulls remain in control of this market with recent weakness mere profit-taking lull in the larger uptrend, the recent intraday roller coaster ride included.

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

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

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

12-31-10

16

4

12-31-10

154527

60647

1-7-11

16

4

1-7-11

458733

97512

1-14-11

12

7

1-14-11

327777

49317

1-21-11

5

15

1-21-11

376104

106618

1-28-11

6

14

1-28-11

227154

249821

2-4-11

17

3

2-4-11

590448

67646

2-11-11

13

7

2-11-11

514220

98361

2-18-11

12

8

2-18-11

2557718

102605

2-25-11

5

15

2-25-11

893080

195746

3-4-11

8

12

3-4-11

170888

225359



*Note: All data is for calendar 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

1-21-11

15

5

1-21-11

239601

26839

1-24-11

12

8

1-24-11

71963

30755

1-25-11

6

13

1-25-11

64933

30082

1-26-11

8

12

1-26-11

96297

29774

1-27-11

13

7

1-27-11

39290

24578

1-28-11

6

14

1-28-11

49833

103507

1-31-11

14

6

1-31-11

241142

34874

2-1-11

14

6

2-1-11

120947

37779

2-2-11

8

12

2-2-11

133037

16643

2-3-11

9

9

2-3-11

28978

24133

2-4-11

9

11

2-4-11

121512

15259

2-7-11

14

5

2-7-11

92432

24561

2-8-11

13

7

2-8-11

94867

28120

2-9-11

10

10

2-9-11

147855

29984

2-10-11

6

14

2-10-11

133883

37629

2-11-11

12

7

2-11-11

63818

24031

2-14-11

12

8

2-14-11

34610

20791

2-15-11

5

13

2-15-11

2061666

22531

2-16-11

13

7

2-16-11

68997

38095

2-17-11

12

7

2-17-11

282423

21138

2-18-11

7

13

2-18-11

85240

56972

2-21-11

Holiday

2-21-11

Holiday

2-22-11

6

14

2-22-11

752594

117396

2-23-11

9

11

2-23-11

100127

60064

2-24-11

7

13

2-24-11

34581

94353

2-25-11

16

4

2-25-11

35547

26744

2-28-11

14

6

2-28-11

26249

47221

3-1-11

4

16

3-1-11

51170

81255

3-2-11

11

8

3-2-11

48382

51999

3-3-11

16

4

3-3-11

54859

38442

3-4-11

5

15

3-4-11

40515

64053

**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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