Stock market up, but resistance looms at Aug. 31 high

Market Snapshot for session ending 9-7-11:

 

Last

Net Change

%Change

S&P 500 Index

1198.62

+33.38

+2.86%

Dow Jones Industrials Average

11414.86

+275.56

+2.47%

NASDAQ Composite Index

2548.94

+75.10

+3.04%

Value Line Arithmetic Index

2612.33

+97.38

+3.87%

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

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:

  • Recovery in market Wednesday, as measured by S&P 500, followed Tuesday’s decline to bottom edge of 10-day Price Channel and defined uptrend line stretching back to August 9 low.
  • First resistance at August 31 intraday high in S&P (1230.71) remains with strength above that level required to suggest possible further action to major resistance and Head and Shoulders “Neckline” (1255--S&P).
  • Market continues to trace out what could be classic bear “flag” on short-term cycle within context of negative Intermediate Cycle.
  • 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.
  • Total volume on NYSE declined about 9% Wednesday relative to Tuesday’s levels.
  • Cumulative Volume plot high that failed to confirm strength into August 31 short-term high (1230.71—S&P) continues to hold below that late August level.
  • For 24th day in a row, Daily CPFL declined to new short-term low Wednesday. But Put Dollar Volume was only ahead of Call Dollar Volume by 1.02 to 1.
  • Daily MAAD data was net positive by 18 to 2.

Market Overview – What We Think:

  • While we continue to think time is running out on Minor Cycle rebound rally began after early August lows, Wednesday’s rally was an indication there is still some life left in reflex rally.
  • Wednesday’s modest improvement in Call/Put Dollar Volume stats is a possible indication that CPFL could turn marginally positive in last stages of short-term advance. We suspect, however, that there will not be much upside follow through in the indicator.
  • It’s still possible the rebound could carry the S&P to “Neckline” resistance (1255) of recently violated Head and Shoulders Top, but increasing downside volume on market weakness has been 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.
  • 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 S&P 500 and S&P Emini to better mid-August indicator resistance is an indication weaker hands have been fueling buying.
  • 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.

Click charts to enlarge

Next page: Indicator update

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