Market recovers from losses, but resistance remains

Market Snapshot:



Week Chg

Week %Chg

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)

"Slow down there, sport. One big losing day does not a new bear market make!"

"I know that, but last Wednesday’s loss of nearly 390 points in Mama Dow and almost 47 in the S&P took serious chunks out of the market and set the stage for possible downside follow through."

"Yah, but… yah, but…. Thing is, sport, the shorts gave it all back Thursday and Friday plus some on Sunday night and then a few positive ticks on the week. So what you’ve gotta decide is whether that one day downside wonder was the end of the short-term rally, a draw play, or something else."

Such was part of the internal dialogue we’ve been having over the past several days. And underscoring those cogitations is the knowledge that while the Minor Cycle in the stock market had been exhibiting moderately "Overbought" conditions, most of those readings had been neutralized into last Wednesday’s downdraft. Short-term Momentum was toward "Neutral" while our two proprietary Trading Oscillators also hit "Neutral" in conjunction with the selling. In addition, our Most Actives Advance/Decline Line (MAAD) Daily Ratio led the parade by slipping back to "Neutral" nearly two weeks before Wednesday’s selling.

Market Overview – What We Know:

  • S&P 500 recovered nearly all of its losses suffered last Wednesday via strength on Thursday and Friday. Index was actually up a fraction on the week.
  • S&P 500 was last within range of October 27 intraday high (1292.66), and minor resistance put in place October 27. That level must be surpassed on upside to re-assert Intermediate Cycle positive
  • Despite strength, however, index prices remain stalled in vicinity of ‘Necklines” of defined Head and Shoulders Top formations that were given definition prior to and into the early August and early October lows. Those “Necklines” define initial resistance and can act to impede price strength.
  • Daily Most Actives Advance/Decline Line (MAAD) rallied to new short-term high last Friday as indicator remains in synch with index pricing. Daily MAAD Ratio was last near “Neutral.”
  • Intermediate Cycle remains positive, albeit moderately “Overbought” while Major Cycle remains near “Neutral.”
  • Cumulative Volume in both S&P 500 and S&P Emini has been in synch with S&P, but on relative basis has not recovered as much of decline from May high as has S&P index. While S&P 500 has recovered about 65% of price losses since May high, CV in S&P 500 and S&P Emini has only recovered about 50%.
  • Call/Put Dollar Value Flow Line (CPFL) continues to underperform broad market.

What we’re getting at here is that neutrality in what appears to be a positive trend, and by that we mean the next larger Intermediate Cycle, can be good enough for a resumption of the larger cycle advance. In other words, attempting to profit from a short-term pullback in a larger cycle positive is a lot like trying to push a balloon under water. Each time the short-term cycle pulls back, there are buyers waiting to get in.

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