Stock market rallies, but Santa forgot the volume

Market Overview – What We Think:

  • As we’ve suggested before, higher prices do not a bearish case make. That’s unless bull is ingesting hemlock, or in the current case when volume underpinnings of rally are weak.
  • Last week’s strength in major indexes gave a boost to bullish cause on Intermediate Cycle, but S&P 500 still has 100 points of major resistance to overcome before new highs could follow.
  • We suspect short- to intermediate-term rally will fade somewhere this side of 1370.58 and that bearish case will prevail.
  • Ongoing development and maturation of potential ascending wedge chart pattern since inception after October lows is suggestion all strength since October lows could ultimately prove to be reflex rally in wake of bear market top made last May.
  • While near-term looks a bit more optimistic as does larger Intermediate Cycle, fact is that wide range of sellers will be eager to break even all way to 1370.58—S&P 500.
  • Amplifying our concerns over price, none of our key indicators including CPFL, MAAD, CV, or Momentum looks eager to confirm index pricing. Lack of indicator faith makes us all more skeptical of strength toward or even above the May highs, levels that must be overcome to re-assert Major Cycle advance.

Also, a quick look at a chart of any of the major indexes highlights the chart formation that has been developing over the past few months, a pattern we suspect is a classic “rising wedge” that has proven to be historically bearish. Such a pattern usually consists of three parts –an “A” leg advance, a “B” leg pull back, and then a final “C” leg rally. If we are correct that the move since early October is merely a reactive rally in an otherwise negative longer-term down move, then we could see the S&P higher on that “C” leg rally now underway to anywhere from 1310.77 to 1375.55. If the former target is the final ascending wedge top that action would not be good enough for a new market high and would simply underscore yet another upside failure as has been the case since the August breakdown in pricing. But if the more optimistic target is hit, that level would be good enough for a new high and would better the May peak in the S&P 500 at 1370.58. Maybe.

Daily S & P 500 Index with Cumulative Volume

Weekly S & P 500 Index with Cumulative Volume

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