Market tracing short-term ‘continuation’ pattern

Market Snapshot for session ending 11-14-11:

Market Overview – What We Know:

• Selling in S&P 500 Monday left bellwether index about midway in trading range that has been developing for nearly three weeks.
• Range is bounded on upside by October 27 intraday high (1292.66) and on downside by November 1 intraday low (1215.42).
• Consolidation has some of earmarks of “Symmetrical Triangle” formation, a chart pattern which can act as a continuation formation.
• October 27 high must be must be exceeded to re-assert Intermediate Cycle positive.
• Short-term trend remains “Neutral,” Intermediate Cycle remains positive, albeit moderately “Overbought” while Major Cycle remains near “Neutral.”
• S&P 500 remains stalled in vicinity of ‘Neckline” of Head and Shoulders Top that was evident prior to and into the early August and early October lows. Neckline is now acting as initial resistance and can impede further strength.
• Daily Most Actives Advance/Decline Line (MAAD) rallied to new short-term high last Friday and remains somewhat stronger than broad market. Daily MAAD Ratio was last 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. -- Call/Put Dollar Value Flow Line (CPFL) continues to underperform broad market

Market Overview – What We Think:

• It’s possible trading range developing in S&P 500 since October 27 intraday high could prove to be consolidation pattern within context of positive next larger Intermediate Cycle.
• To prove point, S&P must rally first above down sloping trendline last plotted near 1275 with subsequent upside follow-through above October 27 intraday high at 1292.66.
• Lacking net strength to new short-term highs and absorption of overhead resistance stretching to 1370.58, and to a new Major Cycle high, we must regard all strength as a mere “return action” rally within context of longer-term top.
• But if S&P is able to better 1292.66, net hesitation in market over past few weeks that led to elimination of “Overbought” conditions with “Neutral” readings now prevailing could be suggestion market is on verge of another up leg within context of Intermediate Cycle positive.
• Failure of CPFL to demonstrate little net strength since October lows could continue to act as drag on market.

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