Stock bulls prove their point, but without full participation

Short and Intermediate-term trends remain positive

Market Overview – What We Think:

  • Resumption of short to intermediate term strength in major indexes over past several sessions has merely re-asserted intermediate-term uptrend begun after October 2011 lows.
  • While we had presumed possible Key Reversal Day created in S&P and Dow 30 on February 29 might have proven to be top of five month old rally, recent buying to new highs eliminated that suspicion.
  • Failure of Momentum on both short and intermediate cycles could be sign recent bout of strength is abating. Fact that market is “Overbought” is helpful, but such measurements are not definitive since “Overbought” readings can stay that way. It is reversals of those conditions that count, not the extreme conditions themselves.
  • There is also lingering lack of confirmation in Cumulative Volume in both S&P 500 and S&P Emini in that both series remain well below 2011 indicator plot highs. While such divergent tendencies have not stemmed tide of advance since October, it is nonetheless suggestion volume underpinnings of market are not as strong this time around as during previous rallies.

But as long as the short-term trend continues to rally, “Overbought” or not, the potential for higher prices remains. This market has proven that point for months and even with a lack of indicator underpinnings. Although it’s true poor indicator corroboration usually comes back to haunt the market, being short a rally like the one which has persisted since October is the quickest route to financial ruin we can imagine. Truth is, the trend is always the investor’s friend and indicators are merely suggestions about possible market action.

Daily S & P 500 Index with Cumulative Volume

Weekly S & P 500 Index with Cumulative Volume

The indicator conflict continues on the Momentum front. On the Minor Cycle Momentum peaked the first week in January, but the S&P has rallied 10% since then. On the Intermediate Cycle Momentum peaked the week ending February 17 and has confirmed none of the strength in the S&P since then. But the S&P 500 improved more than 3%. And on the Major Cycle using monthly data Momentum peaked the month ending March 2010 and the S&P has rallied another 20%.

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