Fragile market sinks as indicator hits low for move

Market Snapshot for session ending 10-17-11:

Market Overview – What We Know:

• In face of extremely “Overbought” short-term statistics, major indexes sold sharply lower Monday.
• Trading volume in S&P 500 rose 6.2% on market weakness.
• Upside failure in S&P 500 came in vicinity of upper edge of 10-Week Price Channel resistance at 1232.07, level that is good for the rest of this week.
• CPFL sold down to a new low for the move and its worst level since March 3 to highlight ongoing net selling by options investors on Dollar Value basis, despite net market strength for past two weeks.
• MAAD moved lower on Daily Cycle Monday with 4 issues up and 16 negative. Daily MAAD Ratio remains in extremely “Overbought” territory while MAAD Weekly Ratio remains “Oversold.”
• Cumulative Volume in both S&P 500 and S&P Emini futures contract remains weaker than S&P pricing.
• Major Cycle Momentum remains marginally negative in all of major indexes.

Market Overview – What We Think:

• While Intermediate Cycle continues to hold toward “Oversold” territory while underscoring upside potential, “Overbought” short-term statistics could result in corrective action within context of developing Intermediate Cycle positive.
• But weakness back toward August lows (1074.77—S&P 500) would simply underscore fact that strength over past two weeks could prove to be yet another failed short-term rally, the 6th to date since the early August lows.
• Strength above Intermediate Cycle 10-Week Price Channel at 1232.07 would be a good sign, but ongoing upside failures toward that level would suggest sellers remain in control and that Intermediate “Oversold” readings could easily be erased with only slightly positive to neutral readings over the next several weeks.
• In defined downtrends “Neutral” readings can equate with “Overbought in a bull trend.
• Significant overhead looms from 1255 in S&P 500 up to May high (1370.58).
• Fact that Cumulative Volume remains weaker than prices (S&P 500 and S&P Emini futures contract) is indicative of still unfavorable market internals.
• Fact that CPFL sold down to another new low could be an indication that recent strength on Intermediate Cycle was premature, given fact that broad market needs positive encouragement from options indicator.

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