Stock gains on shrinking volume suggest short-covering

Pause in drop doesn't feel like bottom

Market Snapshot for session ending 3-7-12:

 

Last

Day Change

%Change

S&P 500 Index

1352.63

+9.27

+.69%

Dow Jones Industrials

12837.33

+78.17

+.61%

NASDAQ Composite

2935.69

+25.36

+.87%

Value Line Arithmetic Index

2943.40

+28.13

+.96%

Minor Cycle (Short-term trend lasting days to a few weeks) Negative

Intermediate Cycle (Medium trend lasting weeks to several months) Positive / Neutral

Major Cycle (Long-term trend lasting several months to years) Positive / Neutral

Market Overview – What We Know:

  • Modest gains in major indexes Wednesday on heels of Tuesday’s sharp losses could prove to be short-covering strength in short-term decline.
  • Despite gain, trading volume in S&P 500 diminished by over 16% Wednesday.
  • Further selling would make larger and more important Intermediate Cycle an issue to extent defined lower boundaries of 10-Week Price Channels hold -- or not.
  • Recent negativity developed after major indexes moved within range of upside measured move targets as calculated from October 2011 lows.
  • With S&P 500 selling below lower edge of 10-Day Price Channel Tuesday, nothing but strength back above upper edge of same 10-Day Price Channel (1371.40 / Thursday) would suggest reversal of short-term trend back to positive.
  • Most Actives Advance Decline Line (MAAD) was positive Wednesday by 18 to 2 with indicator still plotted below February 8 short-term peak. Daily MAAD Ratio was last toward “Oversold” territory. Weekly MAAD has yet to exceed 2011 high.
  • CPFL was decidedly negative Wednesday by 1.17 to 1.Indicator remains below downtrend line stretching back to February 25, 2011 indicator highs.

Market Overview – What We Think:

  • Wednesday’s strength was likely short-covering rally within context of new Minor Cycle negative.
  • Given recent market negativity, case can now be made that recent highs (1378.04—S&P 500) could prove to be best levels market will see for some time to come. At very least S&P must now exceed recent high to re-assert larger Intermediate Cycle.
  • With requirements for Key Reversal Day met last Wednesday, fact that last such KRD pattern occurred at beginning of second worst stock market decline in history is cause for concern since development of new pattern implies negative potential.
  • If KRD is correct market has seen an important high, very least we could expect from this point forward is negativity on Minor Cycle.
  • Short-term weakness would determine staying power of larger intermediate trend that has been underway since October lows. Weakness in Intermediate Cycle would exert pressure on larger major trend that continues to exhibit neutral readings.
  • Fact that Weekly MAAD has not mimicked strength of Daily MAAD is bearish sign since both cycles must be in synch ultimately to confirm positive longer-term move.
  • CPFL continues to exhibit lackluster performance.

 

Index Daily/Weekly/Monthly Stops Weekly Monthly
 

3/5

3/6

3/7

3/8

3/9

3/9

3/31

S&P 500 Index

SELL 1354.08

SELL 1356.84

SELL 1358.80

SELL 1360.72

SELL 1362.28

SELL 1270.16

SELL 1189.77

Dow Jones Industrials

SELL 12884.94

SELL 12902.19

SELL 12912.44

SELL 12922.52

SELL 12929.39

SELL 12283.19

SELL 11271.99

NASDAQ Composite

SELL 2932.51

SELL 2939.71

SELL 2945.08

SELL 2951.86

SELL 2956.29

SELL 2675.83

SELL 2517.37

Value Line Index

BUY 3039.97

BUY 3042.13

BUY 3044.05

BUY 3042.95

BUY 3038.91

SELL 2747.77

SELL 2612.10

Note: Stop levels, a function of the extant trend, are based on the trailing moving average price channels for the Highs or the Lows of an index. Whether or not a specific index is suggesting a “Buy” or Sell” is determined by whether or not index prices are above or below the current channel Stop levels. Stop levels should only be used as an entry or exit guide and in conjunction with other market entry and exit strategies.

Click charts to enlarge

Next page: Indicator review

Page 1 of 2 >>
Comments
comments powered by Disqus