S&P hits target as indicators correct oversold condition

Market Snapshot for session ending 8-31-11:

Market Overview – What We Know:

• Intraday strength in S&P Wednesday caused bellwether to reach first upside target at 1228.02 if net strength over past several proves to be “C” leg of A-B-C rally.
• S&P faded to close about mid-range once 1228.02 level was hit.
• Short-term trend is positive with statistical Price Channel support at 1145.22.
• Strength in S&P was not confirmed by Cumulative Volume which has yet to break above mid-August resistance.
• Daily CPFL declined to another short-term low with net negativity for 20th session in row. Put Dollar Volume exceeded Call Dollar Volume by 2.57 to 1 as Put Dollar Volume increased and Call Dollar Volume dropped.
• Daily MAAD data was net positive with 13 issues up and 6 down.
• Short-term Momentum in S&P 500 remains moderately “Overbought” just above Neutral with “Overbought” condition evident in one Trading Oscillator and neutrality showing in the other.
• Major resistance holds at Head and Shoulders Neckline (1255) in S&P 500.

Market Overview – What We Think:

• Fade Wednesday in S&P 500 once first target at 1228.02 and possible top of “C” leg was hit could be suggestion market has re-entered zone of vulnerability.
• Fact that short-term Momentum and proprietary Trading Oscillators have returned to neutral to moderately “Overbought” is indication market continues to unravel deeply “Oversold” conditions created during recent sharp decline.
• But we continue to suspect any buying that develops will do so within context of still negative Intermediate Cycle and still challenged long-term uptrend.
• Failure of Cumulative Volume in cash S&P and S&P Emini to better mid-August indicator resistance is an indication weaker hands have been fueling buying over past several days.
• Price action is consistent with bear move retracement.
• So long as market sentiment as measured by such indicators as CPFL remains poor, we think any strength that develops could prove to be no more than weak bargain hunting/short-covering.

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