S&P E-mini Cumulative Volume moves into danger zone

Put another way, since futures contracts are “future” discounting instruments and since futures contract volume is also forward-looking, developing deterioration in these key market instruments would definitely not be a good thing for this market. Simply put, movement by CV in the S&P below the March 2009 support low would be a very bearish occurrence. One might be inclined to ask additionally, “Could strength in the broad market since March 2009 prove to be nothing but a powerful retracement in an ongoing bear trend?”

S & P 500 Index with Cumulative Volume

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While some folks might be inclined to suggest that, “Deterioration in that Emini CV indicator is simply a function of hedging strategies and other internal market adjustments,” we think not and continue to point out the weak underpinnings of this market as reflected in the net negativity of MAAD and CPFL. Simply put, “strength” has been fueled by weaker and weaker hands. Smart Money has simply not participated in this nearly 28-month-old bull market to the same extent it bought previous bull moves over the past 30 years. Cumulative Volume has seconded that reluctance.

In sum, on the Short-term cycle, given the increasing gloom coming from the financial press, we could see some stability and perhaps even a bit of strength in the sessions just ahead. But longer-term we continue to view the market’s actual and implied statistical deterioration with concern since ongoing weakness, especially via Cumulative Volume, may do little to help the bull trend begun in March 2009.

WK Chg 6/13 6/14 6/15 6/16 6/17 6/17 6/30

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 using Daily data declined to a new plot low last Wednesday with modest improvement Thursday and Friday. But what is significant about weakness in the indicator is that it not only led the market on the downside by nearly three months, but that recent weakness caused MAAD to break below its uptrend stretching back to the July 2010 Intermediate Cycle lows. While we could see some index price rebounding in the sessions just ahead, given price proximity to 200-Day Moving Averages and near-term “oversold” levels, we suspect that the overall bias of MAAD on the larger cycles is NOT bullish.

In fact, the longer-term bias of MAAD continues to underscore the fact that Smart Money remains skeptical of this market’s favorable prospects.

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McCurtain Call/Put Dollar Value Flow Line (CPFL)

Daily CPFL data sold off to another series of Short-term lows last week as the activities of options players continued to amplify their suspicions that the net bias of the stock market may be shifting from one that has dictated buying on weakness to a strategy of selling on strength because the market tone has shifted to a longer-term bearish outlook.

The last time CPFL statistics reflected that shift was prior to the major highs of October 2007 when CPFL peaked the week of June 15, 2007 and nearly four months prior to the final market highs. During this cycle CPFL peaked the week ending February 25, 2011 and has been moving laterally to down ever since.

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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

Conclusion

More selling in the major indexes last week not only underscored Short-term negativity, but weakness appears to have reversed the Intermediate Cycle uptrend initiated after the July 2010 price lows to negative. While the Short-term cycle could see some price rebounding just head due to temporary “oversold” conditions and index pricing in the vicinity of 200-day moving averages that can act as support, we suspect that Intermediate-term negativity is not over and that more selling could follow in the weeks ahead.

What should be a larger concern to the bullish camp, however, is how market weakness will ultimately affect the Major Cycle uptrend that is now moving into its 28^th month. Considering the ongoing deterioration of Cumulative Volume in index pricing let alone in the S&P 500 Emini contract sited in our commentary above, we wonder if market bulls may be fighting an increasingly losing battle.

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 link will take you to the MAAD article.