Stock market tug-of-war continues at 2011 highs

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1361.23

+18.59

+1.38%

Dow Jones Industrials

12949.87

+148.64

+1.16%

NASDAQ Composite

2951.78

+47.90

+1.64%

Value Line Arithmetic Index

3039.66

+55.31

+1.85%

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

Definition – “Tug-o-war”:

1. A contest of strength in which two teams tug on opposite ends of a rope, each trying to pull the other across a dividing line.
2. A struggle for supremacy such as in a political tug of war between those in favor of the proposal and those against it.

Considering activity in the stock market over the past several months, we’d like to add a third item to “Tug-o-war” definitions -- 3. A struggle for supremacy between opposing bullish and bearish forces in the stock market.

While the battle the market has been waging since the October lows remains short of titanic, let alone resolved, the results could ultimately be very important for investors and the economy. After nearly four months of trading and price gains the major stock market indexes are about where they were in May 2011, plus or minus a little. While the Dow Jones Industrial Average and the NASDAQ Composite index have bettered their May 2, 2011 prices highs, the S&P 500 and the Value Line index have not. Nor has the Russell 2000, or the Dow Jones Transportation or Utility Averages. In fact of the 14 price indexes and indicators we follow, only three have bettered their 2011 levels. Of those three, only the Dow 30 and the NASDAQ remained above 2011 levels last Friday while the third, Daily MAAD peaked on February 8 and has been unable to make another new high since then.

Market Overview – What We Know:

  • Stock market as measured by major indexes was positive again last week.
  • Dow Jones Industrials and NASDAQ Composite closed above May 2011 highs last week, but S&P 500 and Value Line index did not.
  • After rallying above its March 2011 plot high, Most Actives Advance Decline Line (MAAD) was unable to better new high last week, despite market strength.
  • Weekly MAAD bettered it short-term high created the week ending February 3 by only two issues while remaining well below 2011 high.
  • Trading volume rose last week in the S&P 500 by just under 4%.
  • Short and Intermediate-term trends remain “Overbought” based on S&P price, but MAAD Daily Ratio has moved lower from “Overbought” to “Neutral” and possible zone of opportunity on short-term trend.
  • Weakness below lower edge of 10-Day Price Channel (1338.59--Tuesday) would suggest beginning of end of Minor Cycle trend in effect since December low (1202.37).
  • Short-term Momentum in S&P 500 remains marginally positive, but could easily turn negative.
  • Daily MAAD was positive Friday by only one issue, but was higher by 16 to 2 on the week. Daily MAAD continues to hold below its February 8 short-term high and best levels since May 2011.
  • Cumulative Volume (CV) in both S&P 500 and S&P Emini futures contract made new short-term highs Friday, but CV in both remains well below 2011 highs.
  • Daily CPFL made new short-term high Friday after breaking above late October resistance on Tuesday. But indicator remains substantially below February 25, 2011 plot high.

While there is no denying the fact the major indexes have gained nicely since the October lows, the crux of our analysis and discussion since then has centered around our key indicators that have remained unenthusiastic about the advance. While some will suggest that the 26% rally in the S&P 500 since the October lows on any kind of trading volume, Momentum, and with or without confirmation from a bevy of indicators is still a profitable rally, it is the “nature” of that rally with which we are concerned.

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