Market loses holiday cheer, fades on low volume

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1257.60

-7.73

-.61%

Dow Jones Industrials

12217.58

-76.42

-.62%

NASDAQ Composite

2605.15

-13.49

-.51%

Value Line Arithmetic Index

2695.60

-21.23

-.78%

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

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

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

The lead headline in the December 31 edition of the Wall Street Journal read “Dow Ends Year of Tumult up 6%.” The story also pointed out that the bellwether S&P 500 index was essentially flat on the year with a tiny loss of -.003%. The S&P closed at 1257.60 last Friday vs. its year earlier close at 1257.64. At the same time, the NASDAQ was down 1.7% while the Value Line Index lost 5.9%. With the year’s results in hand, it looks as if blue chips dominated.

But the bigger story of 2011 is that after 12 months of “Maybe I will and maybe I won’t,” the stock market tease is no closer to resolving its upside dilemma than it was some 250-plus trading days ago. Major resistance at last May’s price highs persists and our key indicators continue to underperform relative to index prices. The only real winners last year in the broadest sense were the investor coupon clippers. Principal remained relatively flat and yields delivered. But that stasis will not continue simply because it never has. Apparent equilibrium in the stock market ALWAYS precedes a major change in pricing. We suspect the current phase will be no exception.

Although we continue to suspect the range bound market will ultimately resolve itself on the downside on the longer-term, it is the short to intermediate-term trend that could provide some surprises. Following the October lows, index prices have been engaged in a gradual upward move with one intervening pullback of importance that culminated in the November lows that were followed by higher prices.

Market Overview – What We Know:

  • Dow Jones Industrials gain 6% in 2011, but S&P 500 fades .003% while NASDAQ loses 1.7% with Value Line Index down 5.9%.
  • Short and intermediate trends in S&P 500 remain positive.
  • Major Cycle in S&P remains fractionally positive with long-term Momentum just above “Neutral.”
  • S&P still needs to better later October high (1292.66) to re-assert Intermediate Cycle advance begun after October lows.
  • S&P continues to face major resistance stretching more than 100 points higher to May high at 1370.58, level that must be overcome if Major Cycle trend is to be re-asserted.
  • MAAD on daily trend remains in synch with S&P on upside, but indicator has not performed as well, relatively, as has S&P since October lows. Weekly MAAD remains anemic after hitting new short-term low week ending November 25 and despite better index pricing.
  • CPFL has shown some marginal life lately, but indicator continues to hold not far above new lows made October 19. CPFL has confirmed none of market’s strength since October lows.
  • Cumulative Volume (CV) has kept in step with market since October lows, but longer-term price/volume relationship looks weak.

On the charts, however, all the price action since October looks like a return action rally to the extent the major indexes have been tracing out what could be an “ascending wedge” price pattern. Such action can develop in an otherwise bearish trend and usually consists of three price moves. There is an “A” leg up (October low to October high), a subsequent “B” leg pullback (October high to November low), and then a final upward thrust (November low to end). If we are correct about the formation of this chart pattern and pricing is in the third and final leg up, it’s possible to create upside measured move targets. Calculating from the October low (1074.77) via the October high (1292.66) and November low (1158.66) the S&P measures to 1376.55. A secondary calculation from the November low to the early December high (1267.06) and then from the December 19 reaction low (1202.37) puts the S&P on the “C” leg at 1310.77.

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