Index prices, indicators battle for trend supremacy

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

Market Overview – What We Think:

  • Short-term price action looks as if it could be beginning of near-term pullback, but with Daily MAAD Ratio correcting recent excesses back into “Oversold” territory, possibility another short-term setup prior to strength could be developing.
  • More strength cannot be ruled out so long as prices hold above lower edges of 10-Day Price Channels and so long as larger Intermediate Cycle remains positive.
  • If buyers remain eager to pick up “bargains” on weakness, short to intermediate trend will remain viable.
  • Just the same, intermediate Cycle that has been underway since last October 4 is mature, historically, and is due for a correction.
  • Possible clue to future market direction may rest in price of average share on NYSE. Despite recent short to intermediate new highs, highest recent average price ($61.48) was hit back on March 15. Divergence could be sign fewer and fewer issues have been leading market to new highs.
  • Additional fact that Cumulative Volume (CV) remains anemic relative to 2011 highs in S&P 500, Dow 30, and NASDAQ Composite underscores lack of strong participation in market over past several months, despite price gains.

But that knowledge does not make picking the top of this six-month-old rally any easier except in the knowledge that the longer the advance continues, the closer it is getting to a top. In other words, all mountains have tops. We do know that the advance is several months old, that Momentum has confirmed none of the strength for weeks, that volume continues to lag as notably measured by our Cumulative Volume (CV) numbers, that the Minor and Intermediate Cycles based on price are “Overbought,” and that while our Most Actives Advance/Decline Line (MAAD) data remains generally unimpressed by market strength, the market as measured by the major indexes has continued to work higher.

Daily S & P 500 Index with Cumulative Volume

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Weekly S & P 500 Index with Cumulative Volume

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So, what do we do?

The peak of the rally that began after the October 4 lows will begin with a downside break on the Minor Cycle. Weakness could be decisive, or not. No matter, the end result would be that index prices will sink below the lower edge of defined 10-Day Price Channels (1394.57—S&P 500 / Monday). And they will stay below those price channels as pricing succumbs to further selling. At that point, the larger Intermediate Cycle Price Channels will come under threat at their lower boundaries (1325.12—S&P 500 / through April 6). If intermediate Price Channels are then fractured, it would then be likely the uptrend in effect since early last fall would be over. Then, the extent to which the Intermediate Cycle weakens would determine the staying power of the major trend.

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