Market recovers from losses, but resistance remains

Market Overview – What We Think:

  • While the recovery of last Wednesday’s losses on Thursday and Friday could presage further market strength, lacking movement above October 27 intraday high (1292.66), gains in S&P would have to be regarded as a reflex bounce.
  • If S&P is able to better 1292.66, net hesitation in market over past two weeks that led to elimination of “Overbought” conditions with “Neutral” readings now prevailing could be a suggestion market is on verge of another up leg within context of Intermediate Cycle positive.
  • Overhanging all upside possibilities, however, is zone of major resistance stretching from 1255-1370-58 in S&P 500. To re-assert Major Cycle advance and to end suggestion strength since October low has been merely a “return action” rally, new index highs must follow.
  • Failure of CPFL to demonstrate little upside follow could continue to act as drag on market enthusiasm.
  • But new short-term high in MAAD Friday is an indication of subtle shift in Smart Money crowd’s attitude toward market.

We have been assuming since the October lows that the lack of indicator enthusiasm as reflected in Cumulative Volume (CV) for the S&P 500 index and the S&P Emini futures contract was a reflection of weak market internals. There is also that substantial band of resistance stretching from 1255-1370.58 in the S&P 500. That zone encompasses the lower edge of the Head and Shoulders Top formation and the “Neckline” fractured on the downside in early August. Undoubtedly there are longs clustered in that price spectrum waiting to get even if bids come back to their levels.

Daily S & P 500 Index with Cumulative Volume

Weekly S & P 500 Index with Cumulative Volume

There is also the fact that with the Major Cycle holding positive, albeit marginally, a resumption of buying would occur within the context of that tentative long-term positive and the lingering Intermediate Cycle positive. Put another way, recent Minor Cycle hesitation may have been merely a point of adjustment within the positive context of those larger cycles.

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