S&P 500 sinks to near-term trendline

Market Snapshot for session ending 9-6-11:

Last

Net Change

%Change

S&P 500 Index

1165.24

-8.73

-.74%

Dow Jones Industrials Average

11139.30

-100.95

-.90%

NASDAQ Composite Index

2473.83

-6.50

-.26%

Value Line Arithmetic Index

2514.95

-20.86

-.82%

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

Intermediate Cycle
(Medium trend lasting weeks to several months)
Neutral / Negative

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

Market Overview – What We Know:

  • Tuesday’s selling caused S&P 500 to sink to and just through bottom of 10-Day Price Channel (1158.07) before stabilizing and recovering into the close. After hours futures trading demonstrated further recovery.
  • S&P also found short-term support at rising uptrend line stretching back to August 9 low with second point of contact on Aug. 22.
  • S&P has also traced out what looks like classic bear “flag” in a larger cycle downtrend.
  • Resolution of pattern would come with downside break below trendline and Price Channel with subsequent selling to new lows needed to re-assert larger cycle negative.
  • Cumulative Volume that failed to confirm strength into August 31 short-term high (1230.71—S&P) continues to look weak and could make new lows with modestly more selling.
  • Trading volume on NYSE increased by nearly 18% Tuesday with S&P Emini futures volume ahead by over 45%.
  • Daily CPFL declined to new short-term low Tuesday for 23rd session in a row. Put Dollar Volume was ahead of Call Dollar Volume by 1.59 to 1.
  • Daily MAAD data was net negative by 3 to 16.
  • Major resistance holds at Head and Shoulders Neckline (1255) in S&P 500.

Market Overview – What We Think:

  • We suspect time is running out on this short-term countertrend rally that began after early August lows.
  • We could still allow for strength to “Neckline” resistance (1255) in S&P 500 of recently violated Head and Shoulders Top, but increasing downside volume on market weakness is yet another indication that market internals remain poor and a sign there is little chance major resistance at1255 level in S&P 500 will be overcome.
  • Ongoing deterioration in Call/Put statistics via CPFL simply underscores fact that strength over past month has had weak underpinnings
  • 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 and volume are consistent with bear move retracement.
  • Any strength that develops should prove to be no more than weak bargain hunting/short-covering.
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