Uptrend since October increasingly vulnerable

Weekly report: Intermediate Cycle becomes increasingly vulnerable

Chart, market, volume, indicator Chart, market, volume, indicator

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1370.26

-27.82

-1.98%

Dow Jones Industrials

12849.59

-210.51

-1.61%

NASDAQ Composite

3011.33

-69.17

-2.24%

Value Line Arithmetic Index

2954.04

-65.72

-2.17%

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

Intermediate Cycle (Medium trend lasting weeks to several months) Neutral / Negative

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

Best guess? The April 2 intraday highs in the S&P 500 (1422.38) and Dow Jones Industrial Average (13297.11) and the March 27 intraday highs in the NASDAQ Composite (3134.17) and Value Line Index (3117.85) may prove to be the highest levels of the Intermediate Cycle rally that began after the intraday lows of last October 4. Since then the S&P 500 has gained 32.3% while the Dow 30 tacked on 27.8%, the NASDAQ Composite added 36.3%, and the Value Line index rallied 39.4%.

If we are correct that the high for the intermediate advance has been seen, the most we would look for over the next several sessions in the face of short-term “Oversold” conditions would be for index pricing to work back toward the March 27/April 2 highs. Bids would not exceed those levels. But since the Minor Cycle remains negative, we also cannot preclude the possibility that more near-term selling could develop to not only extend short-term losses, but to also put renewed pressure on the Intermediate Cycle by bringing prices toward, and perhaps below, the lower edge of defined 10-Week Price Channels (1340.58—S&P 500) and our downside “failsafe” levels on the intermediate Cycle.

If we are wrong and intermediate-term highs have not been put in place, nothing but strength back above recent highs would suffice to re-assert the intermediate positive.

Some will argue that we’ve been “down this road before” to the extent the short-term trend weakened and quickly moved into “Oversold” territory before staging another healthy rally within the context of the Intermediate Cycle positive. True, but some things are different this time around. First, our Daily Most Actives Advance/Decline Line (MAAD) peaked back on March 20 when the S&P 500 made an intraday high at 1409.59. Daily MAAD has not re-visited its plot high since then, the first such significant divergence since last October. Secondly, the average price of a share on the NYSE peaked on March 15 and more than two weeks before the S&P peaked. That also is the first such significant divergence in NYSE average pricing since October. And third, Momentum on no cycle confirmed any of the strength into the recent highs to suggest that despite incremental gains in pricing, the upside velocity of the market has been fading for some time.

On the sentiment front, we’ve noted the failure of our Call/Put Dollar Value Flow Line on both the Daily and Weekly cycles. While CPFL began to perk high after the mid-December short-term lows and has remained in a short-term uptrend since then, the amount of Calls on a Dollar Value basis as compared to Puts on a Dollar Value basis has remained anemic. At the same time, neither the Daily nor the Weekly CPFL series is anywhere near the February 25, 2011 indicators highs with both series having only recovered about one third of their losses since the 2011 peaks. On a Dollar Value basis options players have only been buying marginally more calls than puts and apparently remain skeptical of this market’s long-term prospects.

There is also the performance of MAAD on the Weekly Cycle. While Daily MAAD was recently able to overcome its early March 2011 highs by a little more than 8%, Weekly MAAD failed by a couple of percentage points to suggest that despite some marginal enthusiasm by Daily MAAD, the longer term indicator remains unimpressed, especially considering the fact the S&P 500 bettered its 2011 highs by nearly 4%. Although the variances are small, there is no denying the fact that Weekly MAAD has remained in the doldrums for months to suggest yet again that Smart Money has not participated in the rally since October 2011, let alone since March 2009, to the same extent they bought securities during previous rallies, especially during the great bull than ended in early 2000.

Next page: Volume's role

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