Oversold intermediate cycle gains upward momentum

Market Snapshot for session ending 10-10-11:

 

Last

Day Change

%Change

S&P 500 Index

1194.89

+39.43

+3.41%

Dow Jones Industrials

11433.18

+330.08

+2.97%

NASDAQ Composite

2566.05

+86.69

+3.50%

Value Line Arithmetic Index

2537.69

+94.11

+3.85%

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

Intermediate Cycle
(Medium trend lasting weeks to several months)
Neutral / Positive

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

Market Overview – What We Know:

  • Intermediate Cycle gained further credibility Monday when all of major indexes extended short-term rally with strong gains.
  • But trading volume shrank due to lighter than normal holiday activity. Volume in S&P 500 diminished by nearly 21%.
  • Cumulative Volume was higher in both S&P 500 and S&P Emini futures contract, but was somewhat weaker on a cumulative percentage basis than prices due to same holiday activity.
  • Short-term Momentum moved into positive territory Monday along with our two proprietary Trading Oscillators. All three could soon develop "Overbought" readings on Minor Cycle, however.
  • Intermediate Cycle remains "Oversold" and in zone of opportunity.
  • Major Cycle Momentum remains marginally negative in all of major indexes.
  • Daily MAAD was higher Monday with plots breaking up through small downtrend connecting August 31 and September 15 plot highs. Indicator on daily cycle would have to add nearly 75 positive issues to overcome intermediate downtrend stretching back to February 2011 plot highs.
  • CPFL was positive Monday, but indicator remains in defined downtrend stretching back to late February plot highs.

Market Overview – What We Think:

  • Odds have substantially increased that Intermediate Cycle decline initiated after May highs (1370.58—S&P 500) is over and that further net buying could erase deeply "Oversold" intermediate-term conditions.
  • With gains above 10-day Price Channel high (1167.62—S&P 500) Monday, and defined downtrend line (1178—S&P), little resistance remains between current levels and August 31 resistance high (1230.71—S&P).
  • Until Upside Volume kicks in to confirm price strength, our Cumulative Volume series could remain anemic while suggesting doubt as to ongoing viability of rally.
  • There is also issue of substantial "Overhead" resistance stretching up to May highs that begins at breakdown level of Head and Shoulders Top formed between February and late July with a "Neckline" breakdown point, now major resistance, toward 1255.
  • In a nutshell, progress of Intermediate Cycle will depend on market’s ability to overcome and absorb resistance in weeks just ahead as "Oversold" conditions are eliminated. If market ultimately proves unable to get past major resistance as new "Overbought" conditions on Intermediate Cycle develop, market’s Major Cycle bearish flavor could persist.

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