S&P close to upside trendline break, but volume poor

Market Snapshot for session ending 12-22-11:

Market Overview – What We Know:

• On lighter pre-holiday volume S&P 500 rallied to short-term downtrend line Thursday connecting late October and early December highs near 1255. Break above that line would suggest upside follow-through toward October high at 1292.66.
• Strength in S&P Thursday also pushed bids above upper edge of 10-Day Price Channel at 1247.01 to suggest end to short-term negativity.
• Nothing but buying above October 27 intraday and short-term high at 1292.66—S&P 500 would re-assert Intermediate Cycle advance begun after October lows, however.
• MAAD was higher Thursday by 18 to 2 with indicator actually performing somewhat better than broad market. Daily MAAD has come back to a plot level equal to the December 7 price high when the S&P was quoted at 1267.06. MAAD Daily Ratio was last moving toward moderately “Overbought” levels.
• CPFL was positive for third day in row Thursday. Call/Put Dollar Value Ratio was positive by 2.16 to 1, but options trading was noticeably diminished in front of the Christmas holiday.
• Unfortunately, CPFL has confirmed none of advance in broad market since October lows and continues to indicate longer-term internal market weakness as measured by options buyers.

Market Overview – What We Think:

• The game of “ifs” continues. …
• If the S&P is able to better its December 7 intraday high at 1267.06 and then the October 27 high at 1292.77, the larger Intermediate Cycle could come to life once again and we could see a measured move target anywhere from 1310.77 calculated from the November 25 low to 1376.55 as measured from the October low at 1074.77.
• If S&P hits target of 1376.55, that level would exceed the May high at 1370.58 and would be good enough for a new high on the Major Cycle begun in March 2009. Even if new highs follow, however, we do not think there would be any indicator confirmation.
• Lesser target at 1310.77 would be an upside failure and would feed bearish case.
• If short-term failure proves once again that bulls do not have power to force prices higher in face of solid resistance, we would view weakness as yet another sign bears are winning supply/demand battle.
• Weakness below rising uptrend of progressively defined “Rising Wedge” chart formation developing since October lows, would suggest all price action since October has been countertrend bounce within context of larger cycle negative.

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