Third, based on price, the Intermediate Cycle remains as “Overbought” as at any time over the past 10 years. Granted that “Overbought” can stay that way in a strong uptrend, the point comes when the oscillator that measures “Overbought” turns lower and dips into negative territory. That movement is usually synchronous with a reversal of trend. This trend will probably prove to be no exception to the historical norm.
Daily S & P 500 Index with Cumulative Volume
Weekly S & P 500 Index with Cumulative Volume
Fourth, while Weekly MAAD has been moving higher since late November after failing to confirm the early part of the move off of the October lows, the Weekly series has yet to exceed its 2011 highs, despite strength in the major indexes above similar highs by a fair margin. That failure by Weekly MAAD simply points out the notable failure of the so-called Smart Money crowd to participate to the same extent they bought equities during previous rallies. Weekly MAAD diverged significantly from price action in the year prior to the 2000 high and for several months prior to the October 2007 high. Using Daily data, MAAD diverged prior to the May 2011 highs. Those contradictions prior to key market turning points highlighted the fact that divergences in MAAD should not be taken lightly since once again Weekly MAAD is failing to better a key peak made in 2011 as an “Overbought” market seems to be losing steam.
Fifth, daily and weekly Momentum confirmed none of the strength into the most recent highs. While buying power can offset Momentum for a period of time while causing prices to make higher highs, eventually the market begins to loose upside enthusiasm as more sellers step in to take profits when higher highs are made. Ultimately the slide in Momentum is coupled with negativity in price action such as that the market has been experiencing lately and then an overt decline develops.