Stock index surge nearing critical level

Market Snapshot for session ending 10-6-11:

Market Overview – What We Know:

• S&P 500 is rapidly closing in on 10-Day Price Channel resistance (1175.59 through Friday) and short-term downtrend (1185.00), latter of which stretches back to May high and Intermediate Cycle top.
• Trading volume in S&P 500 was lower Thursday by nearly 10%.
• Cumulative Volume rose in both S&P 500 and S&P Emini futures contract, but CV in both is simply in synch with prices in that indicator has rallied back into midst of resistance formed throughout August consolidation.
• Short-term Momentum remains negative, but was last moving higher toward neutral levels.
• Intermediate Cycle remains “Oversold.”
• Major Cycle Momentum remains negative in all of major indexes.
• Daily MAAD was higher again Thursday with 19 issues positive and 1 negative. MAAD, like CV, has remained in step with market over past few sessions.
• Daily MAAD remains toward levels not seen since late July 2009 when S&P 500 was toward 990.
• CPFL was higher for second session in row, but indicator nonetheless remains in defined short- to intermediate-term downtrend and has not responded to buying over past few sessions to same extent as have prices.

Market Overview – What We Think:

• Index prices as measured by S&P 500 are rapidly returning to “point of decision” in that strength above downtrend stretching back to May highs could suggest beginning of end to five month old decline.
• Strength above 10-Day Price Channel (1175.59—S&P 500) would likely lead to follow-through above defined downtrend line.
• Upside failure at this point could possibly be followed by “test” of October 4 low (1074.77—S&P 500) and new low for move.
• Lacking new lows or a decisive break to upside above defined downtrend line, time is running out on intermediate decline since deeply “Oversold” conditions on Intermediate Cycle will inevitably take hold with higher prices developing.
• Shift to more positive flavor by options players could be an early sign market’s downside bias may be abating.

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