Market stalls as short-term overbought readings loom

Market Snapshot for session ending 1-26-12:

Market Overview – What We Know:

• Major indexes suffered marginal losses Thursday on marginally somewhat higher trading volume.
• Short and intermediate-term cycles remain positive, but “Overbought.”
• Short-term Momentum in S&P 500 has failed to confirm any of strength in index since December 19 lows and could flip into negative territory with relative ease.
• Cumulative Volume (CV) in S&P 500 has been trending with index lately, but has not recovered as much of loss since May highs as has index. S&P Emini CV has yet to break above late October resistance.
• Key statistical resistance in S&P holds at upper edge of 10-Month Price Channel at 1336.70 and point that must contain strength if long-term trend is to remain negatively charged.
• Daily MAAD fell back Thursday and was last 27 issues from equaling plot high made March 3, 2011. Weekly MAAD remains weaker than daily series.
• Daily CPFL was positive Thursday by 1.02 to 1, but remains substantially below February 2011 indicator highs and has confirmed none of strength since October lows.

Market Overview – What We Think:

• Major resistance and short-term “Overbought” readings may finally be taking hold in S&P 500.
• To suggest Minor Cycle negative, however, S&P must first decline below lower edge of 10-Day Price Channel (1293.17—Friday).
• With short-term trend in “Overbought” territory, time is running out on this rally.
• When 10-day Price Channel is inevitably broken, extent to which selling then develops will determine staying power of larger Intermediate Cycle which currently remains positive until lower edge of 10-Week Price Channel (1201.03) is fractured on downside.
• If major resistance is overcome and new highs follow, it wouldn’t be first time a sharp downside break (May-October) was followed by movement to a new high. Think July 2007 (1555.10--S&P 500), a brief correction, and then a short-term rally to a new high in October 2007 high (1576.09). Then followed second worst bear in stock market history.

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