Stock market recovers; call/put data get bullish

Market Snapshot for session ending 10-4-11:

 

Last

Day Change

%Change

S&P 500 Index

1123.95

+24.72

+2.25%

Dow Jones Industrials

10808.71

+153.41

+1.44%

NASDAQ Composite

2404.82

+68.98

+2.95%

Value Line Arithmetic Index

2379.30

+104.42

+4.59%

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

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

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

Market Overview – What We Know:

  • New lows in major indexes early Tuesday were followed by sharp price recovery of more than half of Monday’s losses.
  • Trading volume rose.
  • Cumulative Volume also recovered, but continues to remain in defined downtrend.
  • Short-term Momentum remains negative, but positive divergences relative to early August lows persists in all indexes in that new price low Monday were not accompanied by new lows in short-term Momentum.
  • Major Cycle Momentum remains negative in all of major indexes.
  • Most Actives Advance/Decline Line (MAAD), using daily data, rose sharply with 17 issues ahead and 3 negative. Daily MAAD remains toward levels not seen since late July 2009 when S&P 500 was toward 990, however.
  • Call/Put Dollar Value Flow Line (CPFL) declined to new low for move with Puts on Dollar Value basis exceeding calls by 1.20 to 1. But Tuesday’s recovery was accompanied by sharp recovery in calls relative to Monday’s levels. Tuesday’s calls on Dollar Value basis were nearly 4.5 times greater than on Monday while puts on Dollar Value basis were only 1.5 times greater.

Market Overview – What We Think:

  • Tuesday’s sharp recovery in last hour of trading makes us wonder if deeply “Oversold” Intermediate Cycle may have begun to exert positive and upside pressure on market.
  • Increase in call options on Dollar Value basis from Monday to Tuesday could be an indication options players may be viewing market more favorably even though CPFL hit new low for move. Improving tone in call Dollar Value is notable relative to put Dollar Value readings that were weaker.
  • At some point it will become increasingly difficult for short-term trend to remain negative in face of intermediate trend that is “Oversold.” Nothing but new lows by major indexes will reassert negative market bias.
  • Mitigating in favor of bear trend is fact MAAD, CPFL (to new low Tuesday), and CV remain negative.
  • If Major Cycle Momentum readings remain negative through end of month, odds are good long-term Momentum will signal an end to bull trend begun in March 2009.

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