S&P fades near resistance; minor cycle 'Overbought'

Market Snapshot for session ending 10-25-11:

 

Last

Day Change

%Change

S&P 500 Index

1229.05

-25.13

-2.00%

Dow Jones Industrials

11706.62

-207.00

-1.74%

NASDAQ Composite

2638.42

-61.01

-2.26%

Value Line Arithmetic Index

2644.96

-70.30

-2.59%

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

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

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

Market Overview – What We Know:

  • In face of major resistance at bottom of “Neckline” of Head and Shoulders top created prior to early August decline, S&P 500 succumbed to sellers Tuesday.
  • It remains to be seen if weakness was mere profit-taking in short-term advance or beginning of Minor Cycle pullback, given current short-term “Overbought” conditions.
  • Intermediate Cycle remains toward “Neutral” on “Overbought” to “Oversold” spectrum.
  • Volume in S&P 500 index was up about 5% relative to Monday’s levels.
  • S&P 500 continues to face major resistance from 1255 (H&S Neckline resistance) to 1370.58 (May high).
  • S&P 500 Cumulative volume pulled back Tuesday from Monday’s fractional new high on Minor Cycle with S&P Emini futures contract CV still failing to make new short-term high.
  • Prices in S&P 500, Dow Jones Industrials, NASDAQ Composite index, and Value Line Index have moved above upper edge of 10-week Price Channels.
  • MAAD pulled back from Monday’s upside break of defined downtrend line stretching back to March 3 indicator plot high. MAAD Daily Ratio remains “Overbought” with MAAD Weekly Ratio holds just above “Neutral.”
  • Defying its recent trend, CPFL was positive Tuesday by 1.54 to 1, despite market losses.

Market Overview – What We Think:

  • While it may be premature to suggest an end to short-term advance that began after October 4 low (1074.77—S&P 500), fact that market failed in face of major resistance (1255—S&P 500), could be an early sign “overhead” will not be absorbed that easily. In other words, underwater longs may be eagerly awaiting exit points.
  • Short-term Momentum remains “Overbought” and it remains to be seen if recent rally has been driven by weak hands.
  • Minor Cycle remains positive so long as bids hold above defined 10-Day Price Channels (1192.48—S&P 500 Wednesday) while Intermediate Cycle continues remains in zone of opportunity, albeit less so than at October low. Major trend remains iffy. We could see S&P higher to upper edge of 10-Month Price Channel and statistical resistance (1325-1340), but think strength beyond that level could be stretch.
  • MAAD pullback Tuesday says little about short-term trend other than market may be in brief profit-taking mode. But fact that MAAD remains toward “Overbought” levels on Minor Cycle is cause for concern. Weekly MAAD Ratio stats remain toward “Neutral.”
  • “Overbought” short-term statistics remain in place and continue to underscore potential for some corrective action within context of still potentially favorable Intermediate Cycle

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