Major stock indexes near flat; indicators struggle

"Well, Sir, here we are again."

That line was spoken by Grandpa saying Grace in the late-depression Broadway play, "You Can’t Take it With You," published by Moss Hart and George S. Kaufman in 1936. The play was then made into a movie in 1938 by Frank Capra and won an Academy Award for Best Picture and Best Director.

So what does that movie and its quote have to do with the market?

Given the lackluster performance of the stock market for the past 3 ½ months, unless you have written call options on the major indexes or happen to be a very active day trader, as a long-term investor you haven’t made subway fare since mid-February. And yet again the market has been in a month-long pullback that has created yet another crop of Short-term "oversold" conditions. Similar readings were recorded at the April and March lows and then again last December.

Such observations are nothing new. But what is new is the fact that Momentum on the larger Intermediate Cycle is currently just a notch from turning negative. Intermediate-term Momentum lost a little more ground last week and it wouldn’t take much selling to push index prices below trailing 10-week Intermediate Cycle Price Channels. Losses of just under 3% in the S&P 500, Dow 30, NASDAQ, and Value Line would put all four major indexes below weekly price channels while seriously threatening the Intermediate-term uptrend that began last July.

What is not new is that none of the strength in the major indexes to new highs in early May was confirmed by Cumulative Volume, Momentum, our Most Actives Advance/Decline Line (MAAD), or by our Call/Put Dollar Value Flow Line (CPFL).

At the top of the list Cumulative Volume (see chart) not only failed to rally to new highs with prices in early May, but the indicator has steadfastly refused to better its April 2010 plot highs despite strength by the major indexes.

Click chart to enlarge

Momentum on the Short-term cycle may be "oversold" once again, but it continues to remain lackluster across all cycles. Momentum reached its last Minor Cycle high on May 2 and coincidentally with the major indexes, but that peak failed to better the early April Momentum highs. Intermediate Cycle Momentum peaked the week ending February 18 at 147.25, hasn’t been back toward those levels since then, and was last plotted at 6.63. Major Cycle Momentum peaked into the April 2010 highs at 409.25 and was last plotted at 237.50.

And then there is MAAD which peaked on the Short-term Cycle on March 3 while CPFL made a high on February 25. Both indicators failed miserably to make new highs with the major indexes into the May highs.

So, here we are again with some of the same observations and some of the same questions. In the face of Short-term oversold conditions is the market setting itself up for yet another rally attempt that in all likelihood would not be confirmed by key indicators? Or was the three day rally on light volume into last Friday’s pre-holiday close simply a brief "return action" bounce prior to more selling that could easily flip the Intermediate Cycle to negative?

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