Near 2011 highs, stock market bull at critical juncture

Market Snapshot:

Three weeks into the New Year the Stock Market Super Bowl has eager Bulls up a point with grumpy bears at zero. Since January 1 the S&P 500 has gained 4.5%, the Dow Industrials 4.1%, the NASDAQ Composite 6.9%, and the Value Line Index 6.7%. While the NASDAQ and VAY have performed the best so far this year, it’s the venerable Dow that has recovered nearly all of its losses since the May 2011 highs and was last just 1.2% below it May 2011 high.

What remains to be seen now, however, is will that bullish tilt persist over the remainder of the year, let alone over the next few weeks and at least long enough to boost prices to new highs (above 1370-58—S&P 500, 12876.00—Dow 30, 2887.75—NASDAQ Composite, and 3149.52—VAY)?

There’s no denying the fact the net bias of the stock market since early October has been on the upside. But there’s also no denying that the underpinnings of the rally have been a mixed bag. Cumulative Volume (CV) in the S&P 500 finally eked out a new short-term high last Wednesday to better CV’s late October short-term high, but on a relative basis, whereas the S&P 500 has recovered all but 55.2 points of its decline since last May, or 4.02%, CV has only come back 50%. Even more bearish, CV in the S&P Emini has yet to better its late October resistance highs to suggest that folks buying and selling futures contracts are less optimistic than their cash S&P counterparts. And daily trading volume is currently running anywhere from 10% to 20% below comparative levels in early 2011. Where’s the beef?

Market Overview – What We Know:

• Major indexes post further gains on week with Dow Jones Industrials coming within 155.52 points and 1.2% of equaling May 2011 resistance high. S&P 500 remains 4.0% below similar level at 1370.58.
• Short and intermediate-term cycles remain positive, but both are also “Overbought.”
  Major Cycle remains near “Neutral.”
• Upside measured move target from October lows calculates to 1376.55 in S&P 500 if symmetry in possible ascending wedge price pattern develops fully.
• Key statistical resistance in S&P holds at upper edge of 10-Month Price Channel at 1336.70. If that level is surpassed odds would substantially increase that May 2011 high at 1370.58 could be surpassed.
• Cumulative Volume (CV) in S&P 500 remains above later October resistance high after breaking above plot resistance last Wednesday, but CV in S&P Emini has yet to follow suit (see CV charts)
• Minor and Intermediate Cycle Momentum have confirmed none of advance following December 19 short-term lows.
• Daily MAAD reached another short-term high last Friday and has continued to remain in synch with broad market. Daily series was last just over 14% below long-term plot highs made in March 2011. Weekly MAAD remains weaker, however, and was last 47% below 2011 highs.
• Daily CPFL has begun to show some renewed life, but indicator remains anemic on Intermediate Cycle and has confirmed virtually none of broad rally since October lows.

Adding to the mix, the Minor Cycle is now as “Overbought” as at any time over the past several years. While such readings can persist, they will not do so indefinitely. Either prices will move lower and the Overbought conditions will correct or lateral price action will be followed by a correction in overheated statistics. In either case, the market will at least pause. At the same time, Intermediate Cycle statistics are also toward “Overbought” levels, while Momentum has underscored none of the strength since peaking in the S&P 500 on both the short and intermediate-term about a month ago. Major Cycle readings continue to flirt with “Neutral” levels.