Stock indexes near 2011 highs -- New paradigm or something else?

But after perusing the Price Target Table, any astute market practitioner is likely to ask, how is it possible that prices can make new highs or threaten to make new highs, albeit by only slight amounts, and still be in a bear trend?

Market Overview – What We Think:

  • Short- to Intermediate Cycle rally begun after last October’s lows is mature and is need of corrective action. Break below lower edge of 10-Day Price Channel (1343.90) will terminate short-term advance begun after December 19 S&P 500 low (1202.37).
  • But extent of short-term pullback will then determine staying power of Intermediate Cycle uptrend that currently remains positive until lower edge of 10-Week Price Channel at 1258.05. Staying power of intermediate trend will determine viability of Major trend.
  • Short-term pullback must soon develop or our suggestion market has been tracing out a-b-c rally via a bearish “ascending wedge” chart pattern since October lows could become problematic, given fact key major indexes are within range of upside price targets as calculated from October lows.
  • Considering fact that while price-based Ratios remain “Overbought,” Daily MAAD Ratio has corrected from “Overbought” to “Neutral” and we cannot rule out possibility market has corrected recent excesses “internally.”

The answer can be demonstrated in the volume tendencies since the October lows and how those results have played out in our S&P 500 and S&P Emini futures contract Weekly Cumulative Volume charts. In those charts the Ascending Wedge pattern is quite evident. Notice how index prices have substantially erased price losses since the May 2, 2011 highs. While the S&P has yet to better that May 2, 2011 peak at 1370.58 and even though the Dow 30 and the NASDAQ have made marginal new highs, CV in the S&P 500 and S&P Emini has substantially underperformed prices. In fact, Cumulative Volume in both the Dow 30 and the NASDAQ has also failed to make new highs by a healthy margin. While CV in the S&P 500 was last about 35% below its 2011 high with Emini CV trailing by nearly 50%, CV in the Dow 30 was about 40% below its 2011 high as CV in the NASDAQ Composite trailed by about 25%.

Daily S & P 500 Index with Cumulative Volume

Weekly S & P 500 Index with Cumulative Volume

Simply put, if traditional volume measurements as reflected by Cumulative Volume are any indication of the internal strength of the rally since the October lows, the Ascending Wedge pattern with the volume component is no exception to the historical norm EVEN THOUGH some index prices have made new highs while others are threatening to do so as compared to those May 2011 highs.

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