Stock market gaining short-term upside momentum

Market Snapshot for session ending 8-24-11:

Market Overview – What We Know:

• Fragile uptrend connecting 8-9 (1101.54—S&P 500) and 8-22-lows (1221.09—S&P 500) is giving short-term more positive flavor.
• Strength about 1194.98 in S&P 500 would cause bellwether to fracture upper edge of defined 10-Day Price Channel that has remained negative since downside break below lower edge of channel on July 27.
• Strength above 8-17 intraday high at 1208.47 would put S&P prices above interior high point of recent reflex rally which faded last week back to 8-22 intraday 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 remains somewhat weaker.
• Call/Put Dollar Value Flow Line (CPFL) declined to another short-term low Wednesday for 15th day in row and despite net market strength. Put Dollar Volume was negative by 1.39 to 1.
• Most Actives Advance/Decline Line (MAAD) was marginally positive Wednesday by 14 to 6.

Market Overview – What We Think:

• If interim high made 8-17 is surpassed we could see marginal strength back toward recently broken Head and Shoulders “Neckline” in S&P 500 near 1255.
• That level would also coincide with a 60% retracement of recent losses in S&P 500. A 40% retracement would put S&P 500 back to 1204.
• Odds for market weakness to new lows within next couple of weeks are rapidly diminishing and strength or consolidation with a net higher bias is likely over at least the next several sessions.
• So long as CPFL and MAAD remain on-balance weak, we believe any market gains should be viewed with suspicion and as developing within context of larger cycle negativity.
• Fact that Cumulative Volume in S&P Emini is now below its March 2009 plot low is bad sign for broad market on longer term.

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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.

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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.