Stock market increasingly vulnerable to more selling

Market Snapshot for session ending 1-31-12:

Market Overview – What We Know:

• Mixed readings were generated by major indexes Tuesday with S&P 500, Dow 30, and Value Line index off slightly and NASDAQ Composite ahead fractionally.
• Short and Intermediate-term trends remain positive, but “Overbought.”
• Selling in S&P 500 below lower edge of 10-Day Price Channel (1302.33—Wednesday) would suggest beginning of end of Minor Cycle advance underway since mid-December.
• S&P 500 must rally above January 26 intraday high (1333.47) to re-assert Minor Cycle uptrend.
• Short-term Momentum in S&P 500 has failed to confirm any of strength in index since December 19 lows and could slip into negative territory with ease. Intermediate Cycle Momentum has confirmed none of advance since late December.
• Cumulative Volume (CV) in S&P 500 has pulled back with prices over past few days, but remains above late October resistance highs. S&P Emini CV, however, has yet to break above late October resistance and continues to reflect 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).
• Daily MAAD was neutral Tuesday with 10 issues up and 10 down and remains 36 issues from equaling March 3, 2011 high.
• Daily CPFL was positive Monday by 1.12 to 1, but remains well below February 2011 indicator highs. CPFL has confirmed none of strength since October lows.

Market Overview – What We Think:

• Last Thursday’s intraday high at 1333.47—S&P 500 was probably peak of Minor Cycle rally that began over month ago.
• Extent to which short-term trend weakens will determine staying power of larger Intermediate Cycle.
• First serious negativity on Minor Cycle would come with break below 10-Day Price Channel (1302.33—Wednesday) and could set stage up for serious challenge to Intermediate Cycle uptrend in effect since October lows.
• Short-term reversal to negative would mean that no new highs had been reached in any of major indexes.
• If we are correct that all of uptrend since October lows has been a “return action rally” following the creation of a major high in May 2011 (1370.58—S&P 500), a retracement of all gains since October could quickly follow.
• Given proximity of pricing to last May’s highs and fact Minor Cycle has yet to turn negative, we cannot preclude additional upside attempts even though the odds of a continuance of short and intermediate-term rally are rapidly diminishing.

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