After five months, stock market nearing ‘do or die’ point

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1219.66

-35.53

-2.83%

Dow Jones Industrials

11866.39

-317.87

-2.60%

NASDAQ Composite

2555.33

-91.52

-3.45%

Value Line Arithmetic Index

2617.83

-93.75

-3.45%

Minor Cycle
(Short-term trend lasting days to a few weeks)
Negative

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

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

We don’t know about you folks, but we’re getting a bit tired of this market. Talk about a tease. As measured by the S&P 500, the stock market is only marginally below its early August breakdown point. And despite a series of failed short-term rallies over the past few months, the S&P 500 is sitting about where it was nearly 13 months ago.

Price action hasn’t been for naught, however, because in the background our key indicators have been busy running in circles or failing. Not only has our bellwether Call/Put Dollar Value Flow Line (CPFL) refused to confirm ANY of the rally since the August/October lows, but the indicator actually sank to a new Intermediate-term low last week and its lowest plot level since February 25, 2011. That failure by the sentiment heavy options crowd should give bulls pause because, for the better part of the past year, options buyers have continued to hedge their bets on the downside even though equities have attempted several rallies. The key word there, however, is “attempt: because ALL of those rallies flamed out this side of major resistance that stretches from about 1255 in the S&P 500 up to 1370.58.

Market Overview – What We Know:

  • Price action in major indexes on Minor Cycle was net negative last week.
  • But with Intermediate Cycle still holding positive, albeit tentatively, a chance for further rebounding cannot be ruled out.
  • New lows developed last week in our Call/Put Dollar Value Flow Line (CPFL) which has confirmed none of rally since October lows.
  • Market is rapidly reaching point when “do or die” on upside will become key phrase since nothing but new highs above May price peaks (1370-58—S&P 500) would re-assert primary bull begun after March 2009 lows. Minor Cycle resistance at 1292.66—S&P 500 must be first overcome.
  • Most Actives Advance/Decline Line (MAAD) was positive by 13 to 6 on Daily Cycle Friday, but Weekly MAAD stats were decidedly negative at 4 up and 16 down. Longer-term Weekly MAAD remains larger problem since it would not take much net selling to drive indicator to new low and below March 2009 plot lows.
  • Cumulative Volume (CV) in S&P 500 and S&P Emini futures contract has continued to mimic index price action on near-term basis, but CV in neither issue on long-term trend looks healthy. CV in S&P cash and futures could sink to new lows with relative ease.

Our measure of Big Money, the Most Actives Advance/Decline Line (MAAD), has remained mostly in synch with the broad market since the early fall lows, but on a net basis whereas the S&P 500 has retraced about one-half of the distance from the May decline to the final October low, MAAD using daily data has only come back about a third of the distance from the lows made two months ago. In addition, while the S&P made a minor low back on November 25 (1158.66), for the week ending November 25 weekly MAAD sank to a new low in the wake of the decline that followed the May highs. That action is most troubling because even though the S&P was last quoted nearly 83% above its March 2009 price low at 666.79, Weekly MAAD was last just 1.8% above its March 2009 low. Just 1.8% after the better part of three years of market movement! While admittedly MAAD readings on the long-term are just that, long-term, the fact that Big Money continues to demonstrate little upside net enthusiasm is worrisome.

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