Market using up time, momentum in face of major resistance

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1255.19

+10.91

+.87%

Dow Jones Industrials

12184.26

+164.84

+1.37%

NASDAQ Composite

2646.85

+19.92

+.75%

Value Line Arithmetic Index

2711.58

+24.71

+.91%

Minor Cycle
(Short-term trend lasting days to a few weeks)
Positive / Neutral

Intermediate Cycle
(Medium trend lasting weeks to several months)
Positive

Major Cycle
(Long-term trend lasting several months to years)
Positive / Neutral

That loud popping sound you may have heard at the close last Thursday when the S&P 500 and Dow 30 were down 26.66 and 198.67 was probably not the bursting of the short-term rally balloon begun after the November 25 minor lows (1158.66—S&P 500). Word has it some Wall Street folks were practicing cork popping for New Years Eve. At any rate, after nearly a week of hovering on the plus/minus side of 1250, the S&P 500 was last quoted about a dozen points from where it was back on November 30. And for the third time since the late October high (1292.66), the S&P 500 continues to struggle with its 200-Day Simple Moving Average that was last plotted at 1263.32.

So is the inability of the market to make substantial upside headway a big surprise considering the fact resistance now confronted is at the same level as those breakdown points fractured in early August, zones which are now acting as impedance? No. The equilibrium evident in the market is also the end result of a year-long battle between bullish and bearish forces that has left the broad market, as measured by the S&P 500, about where it was at the end of 2010.

Market Overview – What We Know:

  • Index prices have been locked in trading range for past several sessions with apparent buying power hovering just below current bids.
  • Minor Cycle remains positive, but S&P 500 must better October 27 intraday and short-term high (1292.66) to re-assert larger and still positive Intermediate Cycle advance begun after October lows.
  • Major resistance looms from current levels up to May highs (1370.58—S&P 500) and must be overcome to suggest resumption of Major Cycle bull trend begun in March 2009.
  • If broad market stages gains from current levels it will be doing so into holiday season and historically lower end of year volume.
  • MAAD Daily Ratio was last as “Overbought” on Minor Cycle as at any short-term peak over past five years. MAAD Weekly Ratio is moderately “Overbought.” MAAD on longer term cycle remains close to major cycle low created in March 2009.
  • Call/Put Dollar Value Flow Line (CPFL) was negative Friday for seventh session in row. Put Dollar Volume exceeded Call Dollar Volume by 1.05 to 1 with indicator holding not far above short-term low made back on October 17, the lowest point since CPFL peaked back on February 25.
  • CPFL has confirmed none of rally since October lows.
  • Cumulative Volume in both S&P 500 and S&P Emini futures contract has remained in synch with pricing since October, but CV in neither issue on longer term and since May 2011 high has performed as well as index pricing.

But that’s price action. Cumulative Volume (CV) is quite another matter. In the CV charts following notice that after the downside break in early August, CV in neither the S&P 500 nor the S&P Emini futures contract regained as much territory on the upside as did index pricing. Put another way, on an equivalent basis CV in the S&P 500 is now equal to indicator plot levels made in September 2010 when the S&P was quoted at 1100, or nearly 13% on a price basis below current S&P bids. The divergence in the NASDAQ Composite is even greater at 17% with the booby prize going to the Dow 30 at 18%. Conclusion? Volume underpinnings of this market since the October price lows have been weak.

Market Overview – What We Think:

  • Inability of broad market, as measured by S&P 500 index, to overcome major resistance stretching up to 1370.58—S&P means that time continues to waste and that previously “Oversold” conditions on Minor and Intermediate Cycle have evolved to “Overbought” and moderately “Overbought” conditions on Minor and Intermediate Cycles.
  • Put another way, as indexes find it increasingly difficult to surmount resistance, their strategic ability to “overcome” is diminished by each upside failure.
  • Fact that some buying has been generated each time near-term selling has developed over past several sessions, however, could be a good sign for a possible continuation of the short-term rally begun after November 25 price lows.
  • Given fact that larger Intermediate Cycle remains positive and is not yet extremely “Overbought,” we cannot rule out possibility buyers could muster enough buying power to seriously challenge not only major resistance, but also major highs made back in May (1370.58—S&P 500).
  • If more gains follow it could turn out that pullback from October 27 to November 25 was a “B” leg correction in an A-B-C rally begun after October 4 low, then upside measured move to 1376.55 via “C” leg rally is possible. Level would create a new high for move since March 2009 and would better May 2011 peak by several points.
  • If market simply fails as Intermediate Cycle peaks this side of 1370.58—S&P 500, scenario would suggest all price strength since October lows has been nothing but bear market retracement.

So, is it any surprise that index prices have had a tough time overcoming major resistance for the better part of the past four months? There is also the problem with time used up as the market has been dawdling in the face of resistance. What has been happening is that deeply oversold conditions on both the Minor and Intermediate Cycles evident into the August/October lows have largely disappeared. The short-term trend was “Oversold” in early August and early October, and then in late November. Those conditions were replaced by “Overbought” readings. And now “Overbought” levels are evident once again on the Minor Cycle. The Intermediate trend that was deeply “Oversold” in October has now been replaced by moderately “Overbought” readings. Quite simply, time is running out on the statistical portion of the intermediate trend.

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