'Overbought' market marches on toward major resistance

Market Snapshot for session ending 10-26-11:



Day Change


S&P 500 Index




Dow Jones Industrials




NASDAQ Composite




Value Line Arithmetic Index




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

Intermediate Cycle
(Medium trend lasting weeks to several months)

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

Market Overview – What We Know:

  • S&P 500 recouped large chunk of Tuesday’s losses Wednesday, but major resistance beginning at 1255 to 1370.58 remains.
  • Short-term cycle holds positive, but “Overbought.” Intermediate Cycle remains toward “Neutral” on “Overbought” to “Oversold” spectrum.
  • Bottom of 10-day Price Channel and downside exit point (1195.34—S&P) holds through Thursday’s trading (1200.35 on Friday). So long as S&P prices remain above Price Channel, short-term trend is viable.
  • S&P volume rose nearly 12% Wednesday, but Cumulative Volume (CV) in both S&P and S&P Emini futures contract remains weak relative to stronger S&P pricing.
  • Prices in S&P 500, Dow Jones Industrials, NASDAQ Composite index, and Value Line Index have moved above and remain above upper edge of 10-week Price Channels.
  • MAAD recovered Wednesday, but was last still below Monday’s new short-term high. MAAD Daily Ratio remains “Overbought” with MAAD Weekly Ratio holding just above “Neutral.”
  • CPFL was positive again Wednesday by 2.40 to 1.

Market Overview – What We Think:

  • It may be premature to suggest an end to short-term advance that began after October 4 low (1074.77—S&P 500), but with indexes facing initial major resistance (1255—S&P 500) that stretches back up to May highs (1370.58—S&P), we suspect “Overhead” will not be absorbed without a seller’s fight, especially those longs who suffered through the May/October decline and who are now waiting to break even.
  • While Minor cycle remains positive, Intermediate Cycle remains in zone of opportunity, albeit less so than at October low. Major trend remains iffy. We could allow for S&P strength to upper edge of 10-Month Price Channel and statistical resistance (1325-1340), but think gains beyond that level could be difficult.
  • Fact that MAAD remains toward “Overbought” levels on Minor Cycle is cause for concern. Weekly MAAD Ratio holds toward “Neutral.”
  • “Overbought” short-term statistics are evident and continue to underscore potential for corrective action within context of still potentially favorable Intermediate Cycle.

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