Index prices, indicators battle for trend supremacy

Weekly Review: Rally 'what-if' analysis increases as the first quarter comes to an end

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1408.47

+11.36

+.81%

Dow Jones Industrials

13212.04

+131.34

+1.00%

NASDAQ Composite

3091.57

+23.65

+.77%

Value Line Arithmetic Index

3066.24

+6.53

+.21%

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

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

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

There are only a couple more subjects under the sun that will evoke as many responses, opinions, and heated debate as the stock market and the direction of the economy. Those other two would be religion and politics. More accurately, all those subjects can separately or collectively cause a brawl of major proportions, actually or metaphorically. But since we are not feeling particularly devout right now and are currently running on true believer empty when it comes to political dogma, we’ll stick to the stock market, in spite of all its intricacies, foibles and potential pitfalls.

In fact, the rally that has been underway since early October has engendered innumerable “what if” scenarios on the response-opinion-debate circuit. And especially recently. While the bulk of our suggestion several months ago that index pricing could stretch to new highs above the 2011 price peaks while most of our key indicators would not follow suit has come to pass, the accuracy of the prediction has not affected the power of the advance. In fact, those new price highs with the failure of our indicators to confirm the move has become a conundrum that has simply complicated the overall market picture – “What do those indicator divergences imply for future market action?” and “Is it possible the indicators are wrong?”

Market Overview – What We Know:

  • Stock market is about to enter its sixth month since establishing Intermediate Cycle low in major indexes last October 4.
  • All major indexes posted gains last week, but while S&P 500, NASDAQ Composite, and Value Line index hit new highs for move, Dow Jones Industrials did not.
  • Trading Volume on NYSE rose more than 11% last week while price of average NYSE share ($58.39 on Friday) remained below March 15 high price ($61.48), despite index strength.
  • Short and Intermediate Cycle trends remain positive, but “Overbought.”
  • Selling below lower edge of 10-Day Price Channel (1395.47—S&P 500 / Monday) would be required to end Minor Cycle uptrend. Intermediate Cycle at lower edge of 10-Week Channel would be threatened with weakness below 1325.12 in S&P 500 (through April 6).
  • While Weekly Most Actives Advance/Decline Line (MAAD) rallied to new high for move and best level since last October last week, Daily Most Actives (MAAD) peaked back on March 20 and has yet to better that level. Daily MAAD Ratio last plotted at .96 toward “Oversold” territory while weekly MAAD remains moderately “Overbought” at 1.61.
  • Daily and Weekly CPFL rallied to best levels since December 19 lows last week, but neither series is anywhere near overcoming major resistance at February 2011 highs.

Since the only way we have of estimating future market action is to assess the accuracy of indicator performance in the context of price action, we must continue to presume, given the accuracy of our key indicators over the past several decades, that the indicators are doing what they have always done – continuing to measure the internal health of the stock market. Could it be that they are wrong this time around? That there is a new paradigm evolving? Probably not. In other words, because we have faith in our statistical approach to the market, our conclusions must be based on empirical observations that have born fruit in the past and will probably continue to do so.

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