Stock indexes likely have set minor cycle low

Market Snapshot for session ending 8-22-11:

Market Overview – What We Know:

• Index prices continue to hold above recent lows (1101.54—S&P 500).
• Major resistance continues to hold at Head and Shoulders “Neckline” formations broken on downside on August 2. Levels coincide with about 60% retracement from recent lows.
• Cumulative Volume (CV) continues to hold above August 8 interim low in both S&P 500 Cash Index and S&P 500 Emini contract, but Emini CV is somewhat weaker and could make new short-term low with ease.
• Call/Put Dollar Value Flow Line (CPFL) declined to another new short-term low Monday and for 13th day in a row to reflect underlying options player skepticism. Put Dollar Volume was negative by 1.29 to 1, a modest improvement over Friday’s negative reading at 2.17 to 1.
• Most Actives Advance/Decline Line (MAAD) improved fractionally Monday, but indicator remains close to recent low and could easily make new low.

Market Overview – What We Think:

• Odds are increasing that short-term price low was put in place August 9 and that weakness late last week was a “test” of that bottom.
• Even though we would look for some rebounding action IF recent low holds, we suspect ANY strength will prove to be nothing but a reflex rally in larger Intermediate Cycle negative.
• Strength above declining upper edge of 10-Day Price Channel (1196.80-1187.75—S&P 500) in Weekly Summary Price Channel Table (“Daily Stops”) would suggest reversal of Minor Cycle to positive.
• So long as CPFL and MAAD remain weak, we suspect any market strength should be viewed with suspicion.
• Fact Cumulative Volume in S&P Emini is now below its March 2009 plot low is bad sign for broad market on longer term.

Click charts to enlarge

We are also 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

*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.