Time running out on market's reflex rally off August lows

Market Snapshot for session ending 9-8-11:

Market Overview – What We Know:

• After hitting upper edge of 10-day Price Channel at statistical resistance (1197.46) S&P 500 faded Thursday while also falling away from August 31 intraday and first resistance high (1230.71).
• While the short-term rebound that began after August 9 lows (1101.54—S&P) remains in effect, time is running out on this reflex rally.
• Total volume on NYSE rose about 2% Thursday vs. Wednesday’s activity.
• 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 to August lows and lower edge of 10-Day Price Channel. Selling to new lows needed to re-assert larger cycle negative.
• 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 25th day in a row, Daily CPFL declined to new short-term low Thursday with Put Dollar Volume exceeding Call Dollar Volume by 2.38 to 1.
• Daily MAAD data was net negative by 3 to 17.

Market Overview – What We Think:

• We continue to think time is running out on Minor Cycle rebound rally began after early August lows, but there must be a definitive downside break of rising trendline stretching back to August lows with coincident weakness below 10-day Price Channel to end rebound.
• It’s still possible 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.
• Ongoing failure of CPFL to show any enthusiasm for market on upside despite recent price gains is not a good sign.
• 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.

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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.