Stock market still unraveling short-term oversold positions

Despite a one day rally in the stock market early last week, sellers generally re-asserted control over the remaining four sessions and left the S&P 500 down .23% on the week with the Dow Jones Industrial Average .58%. The NASDAQ Composite and the Value Line Index were each ahead just over 1%, but without enthusiasm.

As we’ve suggested recently, equity prices could experience some near-term rebounding as bids stabilize in the vicinity of 200-day Moving Averages. That seems to have been the case since an interim low was put in place several sessions ago on June 16. Since then index prices have moved laterally to slightly higher as deeply "Oversold" short-term statistics have been eliminated. As of Friday’s close, Short-term Momentum was just shy of a neutral reading with our proprietary Trading Oscillators reflecting similar readings.

We suspect, however, that any short-term strength will prove to be nothing but a brief lull in a larger Intermediate-term downdraft that has probably not yet fully run its downside course. But Intermediate Cycle weakness should still unfold within the context of a Major Cycle uptrend that has been in effect since the bull market low was put in place in March 2009.

S & P 500 Emini Futures contract with Cumulative Volume

Confirming the internal weakness of the market on the Short to Intermediate Cycle, our Most Actives Advance/Decline Line (MAAD) remains under its long-term uptrend line fractured via weakness back on June 6. In fact, Daily MAAD statistics are currently back at levels not seen since last December when the S&P 500 Index was nearly 7% lower. Also, not only would it take little additional market weakness to create new Minor Cycle lows in MAAD, but larger cycle Weekly MAAD data is corroborating the negative bias of the smaller trend. Smart Money apparently remains skeptical of this market and seems to be using interim strength to sell.

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