In abyss, ‘oversold’ market looking for support

Market Snapshot for session ending 8-8-11:

Market Overview – What We Know:

• Major indexes in vicinity of downside measured moves from peak of Head and Shoulders Tops (May 2) to "Necklines":
• • S&P 500: 1133 (hit and surpassed).
  • S&P 500 Emini: 1118 (hit and surpassed).
  • Dow Industrials: 10532.
  • NASDAQ Composite: 2297.
  • Value Line Index: 2525 (hit and surpassed).
• Major support is visible at June-August 2010 consolidation (1130-1010—S&P).
• Record volume pushes Cumulative Volume in S&P Emini to new low and well below March 2009 level.
• All indexes sell below Monthly (Major Cycle) Price Channels to suggest continuing jeopardy to long-term trend in effect since March 2009.
• Despite losses, Major Cycle Momentum and Trading Oscillators remain positive, but fading.
• In a matter of days selling has eliminated gains of nearly a year.
• CPFL, MAAD hit new short-term lows.

Market Overview – What We Think:

• August 2010 consolidation levels, and deeply oversold conditions, a reflex rally is likely and soon.
• When rally develops we would look for triple digit up day and back toward H&S Neckline resistance (1255-S&P).
• Any rally will probably fade on deteriorating volume.
• Considering extent of losses over past several sessions and ongoing deterioration of indicators, we must consider possibility that strength since March 2009 will prove to be no more than a bear market rally.
• Nothing but new highs in prices and the indicators will now save this bull market.

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We are updating the daily chart of both the Call/Put Dollar Value Flow Line (CPFL) and Most Actives Advance/Decline Line (MAAD) indicators every day and providing the most recent raw data so you can begin to plot the indicators on your own (see below). The weekly equity index indicator summary provides longer-term commentary based on these indicators.

The definitions of the indicators along with links to the original stories provide helpful background. Also, Robert describes these indicators in a recent I-Trade show presentation available online.

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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. 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.