Market reverses Minor Cycle to negative; correction looms

Market Snapshot for session ending 11-9-11:

Market Overview – What We Know:

• Sharp losses in stock market Wednesday probably ended short-term uptrend begun after October low (1074.77—S&P 500).
• Wednesday’s selling caused S&P 500 to drop below lower edge of 10-Day Price Channel with short-term Momentum also turning negative.
• S&P and other indexes failed to better October 27 intraday high (1292.66—S&P) via “return action” rally over past several days.
• Prices also stalled out in face of “Neckline” resistance of Head and Shoulders broken on downside in early August.
• Intermediate Cycle remains positive and near “Neutral” to moderately “Overbought.”
• Major Cycle remains near “Neutral.”
• Cumulative Volume in both S&P 500 and S&P Emini dropped on Wednesday in conjunction with price weakness. While S&P has recovered about 65% of price losses since May high, CV in S&P 500 and S&P Emini only recovered about 50% prior to Wednesday’s losses.
• Daily Most Actives Advance/Decline Line (MAAD) faded with market Wednesday. No issues advanced and 20 were negative. MAAD Daily Ratio remains near “Neutral.”
• Call/Put Dollar Value Flow Line (CPFL) was negative Wednesday by 2.91 to 1. On net basis CPFL continues to underperform broad market.

Market Overview – What We Think:

• Stock market’s yielding of a large negative verdict Wednesday in face of major resistance simply underscores our recent suspicions near-term vulnerability was brewing.
• Failure to better October 27 intraday high (1292.66—S&P 500) with coincident move to negative by short-term Momentum is suggestion Minor Cycle will now correct recent excesses within context of Intermediate Cycle positive.
• S&P 500 could sink over 100 points (to 1121.98) before lower edge of 10-week Price Channel (see table above) would to fractured to suggest serious challenge to Intermediate Cycle positive. Odds of such weakness are possible, but not probable before short-term stats set up for a rally.
• Ongoing failure of CPFL to demonstrate any upside follow through is a lingering suggestion market internals remain weak.
• Similarly, MAAD has been market sensitive lately, but has only recovered about 50% of its losses from May high whereas S&P retraced nearly 65% of its losses into October 27 highs. That divergence could prove to have lingering negative effect on index prices once short-term high is put in place.
• So long as major resistance (1370.58—S&P 500) holds, there is underlying suggestion all strength back toward resistance highs is merely “return action” within context of Major Cycle that remains iffy with a negative tone.

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