Stocks bid to short-term low as indicators confirm

In sum, given the negative bias of MAAD, CPFL, CV, and Momentum over the past few months we are not surprised the market has finally succumbed to a round of selling pressures. And we would not be surprised to see further weakness on the Short-term Cycle that could develop into more downward pressure on the larger Intermediate Cycle. What would then become critical to the Major trend would be WHERE prices ultimately make an Intermediate Cycle low, how those lows relate to the Major Cycle and its trailing Price Channels, and then how the market responds in a return action rally. Put another way, time is running out on this bull cycle and to remain in denial could ultimately prove to be a bad bet, Mother Nature notwithstanding.

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 was decidedly lower last week with the indicator last at levels not seen since last December. In addition MAAD is also rapidly approaching a rising uptrend line that stretches back to the early July 2010 plot lows. A downside fracture of that line with coincident negativity by Intermediate Cycle Momentum, our proprietary Trading Oscillator with confirming price weakness below 10-Week Price Channels would suggest an end to the year-old Intermediate Cycle uptrend.

It is also quite evident, given the upside failure of MAAD over the past three months, that the Smart Money crowd continues to view bullish stock market prospects with skepticism. As we mentioned earlier, the last time they exhibited such overt pessimism was into the October 2007 Major Cycle high.

Click charts to enlarge

McCurtain Call/Put Dollar Value Flow Line (CPFL)

CPFL sold down to new Short-term lows last week. The indicator is also closing in on a Major Cycle uptrend stretching back to the March 2009 indicator and index price lows.

While some could argue that CPFL hasn’t deteriorated that much since it reached plot highs at the end of February, it is not so much the extent of the down move that is relevant, but its bias. Put another way, options players have been net negative for the past 3 ½ months while failing to confirm none of the strength into the May highs when the major indexes made new price peaks. And, like MAAD, the last time CPFL staged such a negative performance was before the 2007 Major Cycle highs. Then CPFL peaked the week ending June 15, 2007 and nearly four months before the last market highs of the Major Cycle. That lead time was almost identical to the lead in the current scenario.

In a nutshell, options players continue to suggest they remain wary of this market’s bullish prospects and that for now they seem willing, if only by default, to create a net negative bias as measured by the Call/Put Dollar Value Flow Line.

Click charts to enlarge

Conclusion

The major indexes were a bit more assertive on the downside last week with the S&P, Dow, and NASDAQ sinking to their lowest levels since mid-April and the Value Line to its worst bids since mid-March. We suspect selling pressures could continue on the Short- to Intermediate-term Cycles.

What remains to be seen is how far this corrective action will carry and how it will affect the Major trend that has been in effect since the March 2009 price lows. The more weakness that develops, given rising 10-Month Price Channels and trailing long-term "failsafe" levels, the more difficult it will be for the market to rebound and to re-assert the long-term uptrend.

The Momentum of this bull market continues to abate. The past 3 ½ months of net lateral price action that developed in conjunction with indicator deterioration is a suggestion that all is not well with equities.

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

*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

**Note: Unchanged issues are not counted.

Robert McCurtain is a technical analyst, market timer and private investor based in New York City. He is a member of the Market Technicians Association and can be reached at traderbob@nyc.rr.com. 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.