Market bounces higher, but resistance remains

Market Snapshot for session ending 8-9-11:

 

Last

Net Change

%Change

S&P 500

1172.53

+53.07

+4.74%

Dow Jones Industrials

11239.77

+429.92

+3.98%

NASDAQ Composite

2482.52

+124.83

+5.29%

Value Line Arithmetic

2550.15

+142.95

+5.94%

Minor Cycle
(Short-term trend lasting days to a few weeks)

Intermediate Cycle
(Medium trend lasting weeks to several months)

Major Cycle
(Long-term trend lasting several months to years)

Negative

Negative

Neutral / Negative



Market Overview – What We Know:

  • Extreme volatility continues Tuesday and results in sharp gains as major indexes bounce higher in vicinity of downside Head and Shoulders measured move targets and major supports.
  • If a short-term low was put in place via Tuesday’s lows, a normal 40% to 60% retracement of recent losses would give S&P 500 a target range of 1200-1255 and the Dow 30 a range of 11460 to 11900.
  • Strength by indexes toward upper edge of target range would be coincident with Necklines of Head and Shoulders patterns broken on downside last week.
  • Tuesday’s Up/Down Volume was 30 to 1 positive on NYSE; 21 to 1 positive on the NASDAQ; and 9 to 1 positive on the AMEX.
  • While MAAD popped higher Tuesday, CPFL sank to new short-term lows by a ratio of 4 to 1. Last Thursday’s options selling was 3.8 to 1 negative while Monday’s ratio was 9.5 to 1 negative on a dollar value basis.
  • Minor Cycle remains deeply "Oversold" across the board for the major indexes.
  • S&P Emini futures contract posts record volume again.

Market Overview – What We Think:

  • We suspect that short-covering/bargain-hunting will soon wear itself out and that a possible "test" of Tuesday’s lows will develop (1101.54—S&P 500 and 10604.07—Dow 30).
  • If further strength develops it will probably do so on decreasing upside volume.
  • There is also the possibility that Tuesday’s strength could prove to be a mere upward bounce in a short-term trend which has still not run its downward course, despite "oversold" readings.
  • 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.

Click charts to enlarge

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.

Click charts to enlarge

MAAD data for past 30 days*      CPFL data for past 30 Days

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

6-28-11

14

6

6-28-11

36851

34376

6-29-11

16

4

6-29-11

108969

71000

6-30-11

15

5

6-30-11

54196

28399

7-1-11

18

1

7-1-11

100149

51993

7-4-11

Holiday

 

7-4-11

Holiday

 

7-5-11

8

12

7-5-11

58532

18215

7-6-11

6

13

7-6-11

68574

16147

7-7-11

18

1

7-7-11

196066

42730

7-8-11

4

16

7-8-11

49479

31316

7-11-11

1

19

7-11-11

61484

121450

7-12-11

5

15

7-12-11

30530

98038

7-13-11

14

6

7-13-11

25452

90215

7-14-11

3

17

7-14-11

57503

73908

7-15-11

8

10

7-15-11

122830

41278

7-18-11

0

19

7-18-11

32600

70051

7-19-11

18

2

7-19-11

81963

36469

7-20-11

12

8

7-20-11

48958

36029

7-21-11

14

6

7-21-11

81985

37458

7-22-11

6

14

7-22-11

26566

23969

7-25-11

5

15

7-25-11

60431

29726

7-26-11

13

7

7-26-11

12740

29994

7-27-11

3

17

7-27-11

25922

98893

7-28-11

5

14

7-28-11

31161

42272

7-29-11

5

14

7-29-11

39764

73156

8-1-11

8

12

8-1-11

67404

100232

8-2-11

0

20

8-2-11

44027

98237

8-3-11

17

4

8-3-11

112076

111221

8-4-11

0

20

8-4-11

104998

400116

8-5-11

8

12

8-5-11

72140

258219

8-8-11

0

20

8-8-11

71137

673757

8-9-11

19

1

8-9-11

78912

329885

*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.

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