Stock market continues rollercoaster ride above support

Market Snapshot for session ending 8-11-11:

Market Overview – What We Know:

• Bulls and bears continue to battle for supremacy as prices in major indexes find some support above Tuesday’s intraday lows and coincident with downside measured move targets from Head and Shoulders Top formations.
• Minor Cycle remains in deeply “Oversold” territory with some small improvement in Momentum now evident.
• CPFL dipped to a new short-term low Thursday as options players continued to buy puts. Ratio of call dollar value options to put dollar value options was 1.8/1 negative.
• Put option dollar values have been net negative for 12 of past 13 trading sessions to suggest options players remain skeptical of market strength.
• Thursday’s buying was 33 to 1 positive on the NYSE as compared to Wednesday’s 16 to 1 negative to suggest downside pressure is abating. NASDAQ numbers were 25 to 1 Thursday as compared to 12 to 1 Wednesday with AMEX stats at 2.8 to 1 vs. 1 to 1 on Wednesday.

Market Overview – What We Think:

• Odds are increasing that Tuesday’s intraday index lows (1101.54—S&P 500) were the bottom of the Minor Cycle decline that began after the July 7 index highs (1356.48—S&P 500).
• Short-term recovery could play itself out via a classic a-b-c rally consisting of an initial leg up, a small decline, and then another leg up (“c” move) to a slightly higher short-term high to complete corrective action. Stats at that point would probably be back to neutral or better to suggest a new short-term top.
• Odds remain than any short-term rally will not better H&S Neckline resistance (1255-S&P 500)
• Given the extent of recent price and price/volume damage, we suspect market price action could be disappointing for some time.

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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.