As stock market fiddles negatively, bullish cause burns

So why do we keep tapping the bear drum? Obviously, the first reply is “because prices remain unable to prove the opposite case.” Secondly, our key indicators continue to behave poorly on a longer-term basis. Our Daily Most Actives Advance/Decline Line (MAAD) has been in synch with the market since the October lows, but was last rapidly settling back toward those levels. The MAAD Daily Ratio has returned to deeply “Oversold” territory on the Minor Cycle, but it is the larger long-term Weekly MAAD data that is the problem (see accompanying charts). Weekly MAAD declined below its October lows last week and was last positioned just 24 issues above the March 2009 lows. That means that with two weeks of additional market negativity Weekly MAAD would be back to levels not seen since April 1995 when the S&P 500 was quoted above 500.

Market Overview – What We Think:

  • While “Oversold” short-term trend could allow for a price rebound in major indexes over next few weeks, what would then become issue would be ability of indexes to better October 27 intraday and short-term highs (1292.66—S&P 500). Another upside failure in face of major resistance would not bode well for broad market and bullish thesis.
  • Simply put, market pricing remains tentative given fact many of our key indicators (MAAD, CPFL, CV, and longer-term Momentum) continue to maintain barely positive toeholds.
  • Also, fact that S&P and other major indexes have given back substantial portion of rally since October lows should be cause for concern in bullish camp since, obviously, on-balance selling does not a bull trend make.
  • Ultimate failure by prices or indicators or both on upside would underscore potential for longer-term bearish outcome. Simply put, S&P 500 must surpass 1370.58 to re-assert bull trend begun in March 2009.
  • With key indicators still lackluster, we can only continue to wonder at market’s longer-term upside prospects since lack of indicator confirmation has never favored bullish case on historical basis.

Has the Smart Money crowd as reflected in MAAD been exhibiting too much caution since the early 2003 price lows? Could be, but suffice to say that we have never seen an instance where MAAD went one way on the larger defined trend and index pricing went another.

On the options sentiment front, our Call/Put Dollar Value Flow Line (CPFL) has seconded virtually NONE of the index price rally since the October lows. NONE. This indicator with only a little more downside coaxing could sink below its October plot lows with ease. While the amount of the decline in CPFL since it peaked in late February could be construed as bullish (see accompanying charts), because that percentage decline was only marginal, the fact that options players buying calls have been unable to overcome the net selling of put buyers, both on a Dollar Value basis, there is further evidence this market’s underpinning are weak.

Daily S & P 500 Index with Cumulative Volume

Weekly S & P 500 Index with Cumulative Volume

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