S&P at first upside target as overbought market persists

Market Snapshot for session ending 1-18-12:

 

Last

Day Change

%Change

S&P 500 Index

1308.04

+14.37

+1.11%

Dow Jones Industrials

12578.95

+96.87

+.78%

NASDAQ Composite

2769.71

+41.62

+1.53%

Value Line Arithmetic Index

2851.28

+50.02

+1.79%

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

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

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

Market Overview – What We Know:

  • Further gains Wednesday left major indexes at new short to intermediate-term highs and best levels since late July / early August when market was poised for sharp decline that culminated in October lows.
  • Cumulative Volume (CV) in S&P 500 finally bettered resistance high put in place in late October, but CV in S&P Emini has yet to follow suit (see CV charts)
  • Wednesday’s strength allowed S&P 500 to come within range of our first upside measured move target at 1310.77.
  • Next target is upper edge of 10-month Price Channel (1336.70). If that level is surpassed odds would substantially increase that May 2011 high at 1370.58 could be seriously challenged, or exceeded.
  • Short-term cycle remains “Overbought” and Minor Cycle Momentum has confirmed none of short-term advance following December 19 short-term lows.
  • So long as S&P 500 holds above lower edge of 10-day Price Channel (1275.90, Thursday), short-term trend will remain positive. Same for intermediate-term trend until 1200.20.
  • Daily MAAD reached new short-term high Wednesday, remains in synch with broad market, and has recovered about three fourths of its losses since last May. If weekly MAAD has another good week this week and maxes out on upside, indicator will have recovered about two thirds of its losses since last May.
  • CPFL has remained net positive for past six sessions, but indicator remains anemic on Intermediate Cycle.
Index Daily / Weekly / Monthly Stops Weekly Monthly
1/16 1/17 1/18 1/19 1/20 1/20 1/31

S&P 500
Index

SELL
1264.88

SELL
1268.43

SELL
1272.34

SELL
1275.90

SELL
1277.29

SELL
1200.20

BUY
1336.70

Dow Jones
Industrials

SELL
12274.49

SELL
12301.59

SELL
12325.43

SELL
12344.38

SELL
12345.56

SELL
11600.84

BUY
12500.72

NASDAQ
Composite

SELL
2633.25

SELL
2646.44

SELL
2657.27

SELL
2667.84

SELL
2675.00

SELL
2545.00

BUY
2829.75

Value Line
Index

SELL
2705.13

SELL
2714.57

SELL
2727.74

SELL
2741.26

SELL
2750.65

SELL
2569.45

BUY
3054.65

Market Overview – What We Think:

  • Persistent strength on short to intermediate-term cycles has caused us to temper our negative outlook somewhat in addition to fact MAAD continues to improve and CV in S&P 500 finally lifted itself above MAAD resistance created last October.
  • Now that our first upside target in S&P 500 at 1310.77 is within range, short-term Momentum has confirmed none of rally since December 19, and market is now short-term “Overbought,” bigger question becomes how much longer can this rally last before more serious profit-taking develops. Or at least Minor Cycle reverts to negative.
  • Volume in S&P 500 remains substandard. Best volume days now are roughly equal to worst volume days a year ago.
  • Until short-term pullback develops, downside “failsafe” level in S&P 500 will remain at lower edge of 10-day Price Channel (1275.90, Thursday). When Price Channel is inevitably broken, extent to which selling develops thereafter will determine staying power of larger Intermediate Cycle in effect since October lows.
  • As we have said repeatedly, any upside failure that develops before new highs are reached would accrue to benefit of bearish case. Any failure….

Click charts to enlarge

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