Stock market pondering miss or lull on short-term overbought

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1316.33

+.95

+.07%

Dow Jones Industrials

12660.46

-60.02

-.47%

NASDAQ Composite

2816.55

+29.85

+1.07%

Value Line Arithmetic Index

2916.50

+40.15

+1.39%

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

There is an old idiom that goes something like “a miss is as good as a mile,” meaning that a goal not reached by either a small amount or a large amount is still a failure. In the current stock market context with prices having been unable to better the May 2011 resistance highs (1370.58—S&P 500), that old saying has taken on even greater significance since “Overbought” short and intermediate-term statistics persist. Will the market, or won’t it?

Last week’s market action certainly underscored market uncertainty with the S&P 500 up just fractions, as the Dow Jones Industrials faded a little. The NASDAQ Composite and the Value Line Index were ahead, but both remain overheated on the shorter cycle and increasingly vulnerable on the larger intermediate trend.

The price dilemma relative to the May 2011 highs will be resolved. That’s a certainty. But as we’ve noted recently, even if new highs are reached, will that action suggest an optimistic and solid resumption of the bull trend initiated in March 2009, or will it mark the end game of a strong price rally with weak indicator affirmation since the October 2011 price lows? If the former, we would have to see new highs accompanied by all of our key indicators. If the latter it’s belated hats and horns for the bears.

Market Overview – What We Know:

  • Major indexes were mixed last week with S&P up a touch and Dow 30 down fractionally. NASDAQ and Value Line Index were up marginally.
  • Short and intermediate-term cycles remain positive and “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.
  • Intermediate Cycle Momentum has confirmed none of advance since late December.
  • Cumulative Volume (CV) in S&P 500 has moved higher with index lately, but has not recovered since May 2011 as has S&P 500. S&P Emini CV has yet to break above late October resistance and reflects lack of commitment by futures contract buyers.
  • Key statistical resistance in S&P holds at upper edge of 10-Month Price Channel at 1319.38 (February level) and point that must contain strength.
  • Daily MAAD reached short-term high last Wednesday and was 33 issues from equaling its March 2011 high. Weekly MAAD, however, has only recovered about 50% of its loss since May 2011 and was last 66 issues from equaling its 2011 highs.
  • Daily CPFL was positive Friday by 1.33 to 1, but was negative on the week by .76 to 1. CPFL remains substantially below February 2011 indicator highs and has confirmed none of strength since October lows.

While Daily Most Actives Advance/Decline Line (MAAD) has experienced a statistical revival since the late November short-term lows and has even come within range of equaling its March 2011 plot highs, like the “miss and the mile” proverb, the daily series has yet to actually make a new high. There is also the fact that Weekly MAAD remains in a less advantageous position than the daily series. In fact, while Daily MAAD has recovered nearly all of its losses as calculated from the March 2011 highs, Weekly MAAD has only recovered about 50%. Without coincident corroboration from both data sets, we would view strength by Daily MAAD to a new high as suspect, since it is the weekly series that determines the flow of the more important long-term cycle.

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