Stock bulls prove their point, but without full participation

Short and Intermediate-term trends remain positive

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1404.17

+33.30

+2.42%

Dow Jones Industrials

13232.62

+310.62

+2.40%

NASDAQ Composite

3055.26

+66.92

+2.22%

Value Line Arithmetic Index

3074.49

+63.08

+2.09%

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

Well, that’s that…. Sharp gains last Tuesday propelled the S&P 500, Dow Jones Industrial Average, NASDAQ Composite index, and the Value Line index to new short to intermediate-term highs. Strength pushed index prices above the upper edge of 10-Day Price Channels, eliminated a possible Key Reversal Day created February 29 in the S&P and the Dow 30 and created new short-term highs in Cumulative Volume in the S&P 500, S&P Emini futures contract, Dow 30, and the NASDAQ Composite.

Action, which, of course, leaves us with the same dilemma that has persisted for the better part of the past five months – index pricing moving higher while a number of our key indicators have lagged or have simply failed to confirm strength. Notable amongst these is our Call/Put Dollar Value Flow Line (CPFL) that has been perking a bit higher since the December 19 lows, but that has gotten nowhere near that indicator’s 2011 plot highs to reflect the lack of upside enthusiasm by options players, folks who have historically exhibited market prescience.

At the same time, while the S&P, Dow 30, and the NASDAQ Composite have rallied above their respective 2011 price highs, the overall quality of the rally has been limited to the bluer chip issues to the extent that second tier equities as represented by the Value Line index and the Russell 2000 have not overcome 2011 resistance. At the same time, bids in the Dow Jones Transportation Average, a key component of the venerable Dow Theory, have also lagged.

Market Overview – What We Know:

  • Major indexes rally to new short to intermediate-term highs Friday and on week.
  • Short and Intermediate-term trends remain positive, but “Overbought.”
  • Trading Volume in S&P 500 rose by nearly 14% Friday while average share price on NYSE declined to $58.79 from $61.48.
  • Based on price, both Minor and Intermediate Cycles remain “Overbought.”
  • Short-term Momentum has confirmed none of recent strength in any of major indexes to new highs for the move.
  • Cumulative Volume in S&P 500 and S&P Emini futures contract both rallied to new short to intermediate-term highs Friday, but neither series has been able to overcome 2011 highs.
  • Daily Most Actives (MAAD) was even Friday with 10 issues up and 10 down. Daily MAAD Ratio remains marginally above “Neutral” at 1.43. Weekly MAAD Ratio remains “Overbought” at 2.09.
  • Via strength in Weekly MAAD, indicator has overcome resistance in downtrend line stretching back to October 2007, but not downtrend line extending back to May 1999.
  • Daily CPFL was positive Friday by 3.13 to 1 on Dollar Value basis and hit new short-term high. Weekly CPFL was positive by 4.33 to 1.But neither Daily nor Weekly CPFL is anywhere near overcoming major resistance at 2011 indicator highs.

But no matter, “The direction of prices has been decidedly up since last October and we’ve made money,” some say. And they are correct. Even if some price measurements have lagged the S&P. Dow, and NASDAQ, long investments made in the Russell 2000 have still profited.

There is also another truism in play, however -- this rally will end. All rallies end and this one will be no exception. But the fact is, while weakness that followed that potential Key Reversal Day on February 29 resulted in a short-term pullback, the larger and more Intermediate Cycle that has been positive since just after the October lows remained untouched. And while the intermediate trend is also in historically “Overbought” territory, history shows that “Overbought” can stay that way for an extended period of time. It is only a statistical reversal from upside extremes that will ultimately signal a change in the intermediate trend to negative. Preceding that larger cycle reversal the Minor Cycle will first act.

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