Stock market range bound with hint of ‘Gunsmoke'

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1131.42

-5.01

-.44%

Dow Jones Industrials

10913.38

+141.90

+1.31%

NASDAQ Composite

2415.40

-67.83

-2.73%

Value Line Arithmetic Index

2385.05

-28.85

-1.19%

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

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

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

Price action in the stock market over the past two months, at least as measured by the S&P 500 and the other major indexes, has had much the flavor of that old TV classic, “Bonanza,” in that prices have remained range-bound. The Value Line index has been a bit weaker than the other three, but there is nonetheless the smell of “Gunsmoke” in the air to the extent new lows could soon follow with some accompanying price carnage. But new sellers must soon be lassoed.

Lacking such a downside stampede in the S&P, Dow 30, NASDAQ, and the Value Line, the broad market would remain locked in a defined range bounded by the August 9 short-term low at 1101.54--S&P 500 and the August 31 short-term high at 1230.71 with upside implications for the next larger Intermediate Cycle. While it’s possible the sounds of “Home on the Range” could linger a bit longer, this market will not be lulled indefinitely.

Market Overview – What We Know:

  • S&P 500, NASDAQ Composite, and Value Line index all posted net losses last week. Only the Dow Jones Industrials were positive.
  • It would take little additional selling to force all four major indexes to new lows.
  • Cumulative Volume in both S&P 500 and S&P Emini futures contract is poised to make new lows.
  • Most Actives Advance/Decline Line (MAAD) made a new low last week using Weekly data while Daily MAAD indicator could make a new low via just five more negative issues on a daily basis.
  • MAAD Daily data was 20 to 1 negative on Friday while Weekly stats showed 9 issues up and 11 down.
  • CPFL declined to another new low last Friday and last week. Daily Ratio of Put Dollar Volume to Call Dollar Volume was negative by 5.30 to 1 with Weekly Ratio negative by 5.27 to 1 on a dollar value basis.
  • Major Cycle Momentum remains positive, but it would take little additional selling to force that indicator into negative territory, so signaling an end to the bull trend initiated in March 2009.

Market Overview – What We Think:

  • While there is a decidedly negative bias to market’s short-term trend as measured in all of major indexes, selling to new lows must develop or recent market action back toward early August lows might be viewed as basing action prior to run-up on larger Intermediate Cycle.
  • In other words, defined trading range in S&P 500 (1230.71-1101.54) created via early August low and late August high must be terminated to give market larger cycle and longer-term definition.
  • Given time of year, ongoing deterioration of our key indicators and their potential susceptibility to more selling, and vulnerability of Major Cycle Momentum that could soon turn negative, we continue to lean toward a negative resolution of market’s current trading range stalemate.
  • But even if new lows are created and Intermediate Cycle rebound develops, we do not think major resistance (1255-1370.58—S&P 500) will be overcome to suggest a resumption of bull trend begun in March 2009.
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