Volume, CPFL weak, despite Wednesday S&P bounce

Market Snapshot for session ending 11-2-11:

 

Last

Day Change

%Change

S&P 500 Index

1237.90

+19.62

+1.61%

Dow Jones Industrials

11836.04

+178.08

+1.53%

NASDAQ Composite

2639.98

+33.02

+1.27%

Value Line Arithmetic Index

2693.75

+57.03

+2.16%

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

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

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

Market Overview – What We Know:

  • Wednesday major indexes recovered some of losses suffered during previous two sessions that saw S&P give back nearly 34% of gains since October 4 low.
  • Despite strength, Wednesday’s trading volume shrank by nearly 28% in S&P 500, 39% in S&P Emini, 28% in Dow 30, and 15% in NASDAQ Composite.
  • Prices in S&P 500 continue to find statistical support just above 10-Day Price Channel low (see table below), the downside “failsafe” for short-term rally that has been underway for the past month.
  • As a consequence of declining volume Wednesday, Cumulative Volume (CV) in both S&P 500 and S&P Emini futures only recovered marginally relative to index pricing.
  • CV in S&P 500 and S&P Emini remains anemic relative to early October lows, despite strong gains in prices.
  • Prices in S&P 500, Dow Jones Industrials, NASDAQ Composite index, and Value Line Index remain above upper edges of 10-week Price Channels.
  • MAAD was positive Wednesday by 9 to 1, but indicator remains below its October 27 plot high with MAAD DAILY Ratio holding near “Neutral.”
  • CPFL was negative Wednesday by 3.46 to 1 and could make new lows with relative ease. Options players remain unconvinced of market’s upside prospects.
Index Daily stops Weekly Monthly
10/31 11/1 11/2 11/3 11/4 11/4 11/30

S&P 500
Index

SELL
1208.42

SELL
1212.80

SELL
1215.42

SELL
1221.75

SELL
1233.11

SELL
1135.43

BUY
1325.13

Dow Jones
Industrials

SELL
11495.88

SELL
11537.74

SELL
11576.00

SELL
11641.52

SELL
11751.18

SELL
11549.90

BUY
12357.72

NASDAQ
Composite

SELL
2603.64

SELL
2610.14

SELL
2608.74

SELL
2624.78

SELL
2644.13

SELL
2415.40

BUY
2795.45

Value Line
Index

SELL
2570.63

SELL
2585.21

SELL
2594.56

SELL
2619.89

SELL
2655.73

BUY
2431.21

BUY
3027.66

Market Overview – What We Think:

  • While major indexes recovered some of losses Wednesday incurred during previous two sessions, fact there was noticeable drop in upside trading volume while CPFL stats were decidedly negative should be a cause for concern for longs.
  • In addition, fact that index prices are literally “walking” along lower edge of defined 10-Day Price Channels (see Table above and S&P 500 and S&P Emini CV charts) is an indication this market could give further ground, given additional fact it wouldn’t take much more selling to turn short-term Momentum negative.
  • But if short-term weakness proves to be merely temporary corrective action within context of larger Intermediate Cycle, currently overheated conditions could be quickly erased. “Neutral” readings might then be good enough to put in place a short-term low prior to more strength on larger Intermediate Cycle.
  • Big question now, however, is whether or not market would have enough power to overcome major resistance stretching upward to May highs. Options players, as measured by CPFL, apparently think not since indicator remains lackluster and could easily reach new lows.
  • MAAD, like Cumulative Volume (CV), has only recovered about 50% of its losses from May high whereas S&P retraced nearly 75% of its losses prior to selling on Monday and Tuesday. Divergence could prove to have lingering negative effect of index prices once short-term high is put in place.

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