Stock market gains Tuesday, but S&P fades

Market Snapshot for session ending 1-17-12:

Market Overview – What We Know:

• Gains were evident in major indexes again Tuesday, but strength masked fade from days highs with S&P 500 closing 73% below intraday high and Dow Jones 61% below day’s peak.
• Short-term cycle remains “Overbought” and it now wouldn’t take much selling to push short-term Momentum into negative territory for first time since mid-December where Momentum lingered for a few days before confirming current short-term positive.
• So long as S&P 500 holds above lower edge of 10-day Price Channel (1272.34, Wednesday), short-term trend will remain positive.
• S&P 500 remains somewhat below our first upside measured move target at 1310.77.
• Daily MAAD reached new short-term high last Thursday and has actually been doing better than broad market since December 19 Minor Cycle low, but that smaller cycle is now “Overbought.”
• MAAD on larger Intermediate Cycle remains not far above major support of March 2009 indicator lows.
• CPFL remains anemic overall and has confirmed none of strength in broad market since October lows.
• Cumulative Volume (CV) in neither S&P 500 nor S&P Emini has bettered late October resistance highs, despite fact S&P and Dow have hit new short-term highs.

Market Overview – What We Think:

• Tuesday’s price action was telling to extent index prices could not hold early session gains. Such action is often symptomatic of price action toward end of a move as sellers eager to exit step up selling or prices hit sell stop levels.
• Downside “failsafe” in S&P at lower edge of 10-day Price Channel (1272.34) would determine staying power of Minor Cycle and will have larger effect on Intermediate Cycle if short-term trend reverses to negative.
• Recent improvement in MAAD was encouraging, but with Daily MAAD Ratio now “Overbought,” to expect more gains in MAAD in a market that continues to have problems with resistance might be too much to ask
• 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 or even this side of our first measured move target at 1310.77. Tuesday’s high was close to that mark.
• Hanging over all price action is major resistance high at May 2011 peak (1370-58—S&P 500) and level we do not think this market will be able to overcome.

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