Following May to October stock decline -- blue sky or Sisyphus?

Then there is the larger and most important Major Cycle which still reflects slightly negative Momentum in the bellwether S&P although negative Momentum numbers have been eliminated in the Dow 30 and the NASDAQ. The Value Line still exhibits negative Major Cycle Momentum.

Market Overview – What We Think:

  • Short-term strength within context of Intermediate Cycle upside potential could continue for awhile, but with Minor Cycle already into “Overbought” territory, some consolidation is inevitable sooner than later.
  • Larger question continues to poke its head up -- will Intermediate Cycle potential and moderately “Oversold” readings be good enough to power market substantially higher and possibly overcome May highs (1370.58—S&P 500)?
  • Cumulative Volume and CPFL continue to “doubt” upside index possibilities in that both have failed to confirm recent strength.
  • Eventual failure of this rally and ability of market to head higher after two months of consolidation could be sign movement since early August was merely lull in primary bear market.
  • First major resistance at 1255—S&P 500 will provide significant answers as to whether this market will have staying power and whether or not selling from May to August/October lows was merely pullback in bull trend or whether recent strength will prove to be bear rally in bear trend.

We also continue to monitor our Most Actives Advance/Decline Line (MAAD) which has been strong lately to the extent the indicator has drawn within range of a defined downtrend line stretching back to the early March indicator plot high. But even if MAAD breaks that line on the upside, it remains noticeably below the actual plot high of early March. The Daily MAAD Ratio is also extremely “Overbought” while the Weekly MAAD Ratio, after trending lower in “Oversold” territory since early June has quickly moved back to “Neutral” plus a notch and could easily head to “Overbought” territory by simply canceling one set of old numbers and replacing them with a new set even though the new numbers are not all that terrific. That kind of action is characteristic of a bear trend when “Oversold” is quickly followed by “Overbought.” Or in a bull move when “Overbought” is soon followed by “Oversold.”

Daily S & P 500 Index with Cumulative Volume

Weekly S & P 500 Index with Cumulative Volume

Also, our Call/Put Dollar Value Flow Line (CPFL) has been notoriously unenthusiastic since the August lows. In fact, CPFL made a new intermediate low as late as October 17 before managing to show some upside enthusiasm. Via that feeble response, CPFL has only recovered about half of its losses from the August highs to the October low. The there is major plot resistance at the late February high. And Cumulative Volume (CV) has demonstrated less than stellar performance in both the S&P 500 and the S&P Emini to the extent CV in neither issue has made a new short-term high with prices. The same can be said for CV in both the Dow and the NASDAQ.

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