In fact, chart action looks a lot like market activity that followed the first serious downside break in the prices after the October 2007 highs. Bids were lower until late January 2008, rallied a bit and then made a somewhat lower low in late March. A return action rally developed and lasted until late May and then it was all over after nearly four months. Extant Intermediate Cycle “Overbought” conditions were followed by renewed market weakness and the bear was in full roar until March 2009.
Market Overview – What We Think:
- So long as short and intermediate-term trends remain positive, we must allow for further price gains. Considering fact developing “ascending wedge” price pattern is approaching possible end stage, continuation of rally that began after October lows is questionable.
- Improvement in MAAD on the smallest daily cycle is encouraging from a bullish point-of-view, but the indicator must still overcome resistance at its May 2011 high while larger and more important weekly MAAD remains lackluster and offers little hope it will even come close to making new highs. Divergence between two suggests to us that more volatile daily series may have gotten ahead of itself since MAAD Daily Ratio is “Overbought.”
- Lack of confirming action in Cumulative Volume (CV) makes us continue to wonder if rally underway since October lows could soon play out and terminate somewhere this side of 1336.70—S&P 500 at upper edge of 10-month Price Channel, level now acting as long-term statistical resistance.
- Hanging over all price action is major resistance high at May peak (1370-58—S&P 500) and level we do not think this market will be able to overcome anytime soon.
In chart action that has developed since the August/October lows there are similarities. August was the first low followed by a slightly lower low in October. This rally has lasted five months versus four in 2008, but the pattern looks the same. Market stats on both the Minor and Intermediate Cycles are overheated. Prices continue to struggle on the upside on mediocre volume. Options players, as measured by our Call/Put Dollar Value Flow Line (CPFL) remain nonplussed about this market and have confirmed virtually none of the rally since October. CPFL could make new lows with ease.
Daily S & P 500 Index with Cumulative Volume
Weekly S & P 500 Index with Cumulative Volume