Market defies indicator deterioration, but for how long?

On the options front, our Call/Put Dollar Value Flow Line (CPFL) continues to flirt with a little bit positive and a little bit negative while holding only inches above the new lows the indicator made December 19 and the lowest levels since the indicator peaked nearly a year ago on February 25, 2011. Options players, like their Smart Money MAAD counterparts, continue to view this market with a healthy dose of skepticism. The last time we saw CPFL fail so dramatically counter to the market was prior to the October 2007 highs when the indicator peaked four months before the final highs. Earlier in 2000, CPFL reached a high with the market in late March, but then noticeably deteriorated into the fall of 2000 as the indexes staged an abortive upside attempt that came within points of eclipsing the March highs. In fact, CPFL was trading at new lows as the market staged that last rally.

Daily S & P 500 Index with Cumulative Volume

Weekly S & P 500 Index with Cumulative Volume

We mentioned CV earlier, but also must note that this important indicator took a major hit during the August decline. Not only did CV in the S&P 500 erase nearly all of its gains since the March 2009 lows, but the indicator has simply not kept up with S&P pricing since October. S&P Emini CV is a chart disaster. Not only did CV in that issue sink to an historical low in early August, and following a massive conformation failure into the May 2011 highs, but if the Emini CV breaks below the August lows, such weakness would put the indicator at yet another new long-term low.

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