Stock market rallies Monday, but key indicators do not

Market Snapshot for session ending 9-26-11:

Market Overview – What We Know:

• Despite strong price gains in major indexes Monday, bellwether S&P 500 with a 26.51 point gain experienced declining volume while the Call/put Dollar Value Flow Line (CPFL), a measure of market sentiment via options trading, was negative by nearly 1.70 to 1 as the indicator sank to a new short to intermediate term low.
• Because S&P trading volume has diminished even though prices have gained over the past two trading sessions, Cumulative Volume remains not far from a new low made last Thursday.
• S&P 500 needs to decline below August 9 intraday low (1101.54) to make a new low for the move initiated after the May 2 high (1370.58).
• Short-term trend remains negative and just below neutral level while intermediate trend remains negative and “Oversold.”
• Monday’s trading volume in S&P 500 diminished by 8%.
• MAAD recovered somewhat Monday with 16 issues up and 4 down, but indicator nonetheless remains in defined downtrend.

Market Overview – What We Think:

• Ongoing deterioration in CPFL and shrinking upside volume in face of market gains over past two sessions suggests short-covering rally and countertrend strength on short-term cycle within context of larger intermediate term negative.
• Since resistance continues to loom from current levels to August 31 intraday high (1230.71), let alone back to “Neckline” of Head and Shoulders pattern recently broken on downside, we suspect odds are remote market will be above to overcome resistance before more concerted selling develops.
• While MAAD has demonstrated modest improvement over past two sessions, it would take little net selling to push indicator to new lows on the Minor Cycle while positioning indicator for serious threat to March 2009 indicator lows on larger weekly trend to underscore fact “Smart Money” remains disenchanted with market.
• 10-Day Price Channel statistical resistance (1204.96—S&P 500 on Tuesday) should contain any near-term strength that develops.
• Weak position of Cumulative Volume relative to S&P 500 is probably an indication internal position of market remains weak.

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