Uptrend since October increasingly vulnerable

Weekly report: Intermediate Cycle becomes increasingly vulnerable

Volume, or lack of it, has also been a factor. With average NYSE at its lowest levels in a decade, adjusted volume vs. price as reflected in our Cumulative Volume (CV) numbers mirrors the short fall in overall market volume. The highest CV in the S&P 500 over the past two years developed the week ending April 15, 2010. S&P CV moved back toward that level as the index price highs in the spring of 2011 occurred, but was unable to exceed the 2010 peak. Then came the selloff that began in late July 2011 that culminated in the October 2011 lows. CV was hammered in that decline in all of the major indexes and in Emini futures contracts. In the wake of that decline, CV has yet again been unable to better its 2010 plot highs.

What all of these negative divergences have in common, whether they be Momentum, MAAD, CPFL, CV, or NYSE average pricing, is that the internal power of the market has been abating, despite index pricing gains, since April 2010. Is it possible to make money in powerful countertrend rallies underscored by poor market internals? Of course. But ultimately those weak internals come back to haunt unwary buyers or long-term holders of equities with poor exit strategies. That’s a veritable certainty. Inevitably one of these rallies with weak underpinnings is going to give way to a round of serious selling that will bring the market in line with reluctant indicators. And considering the fact the S&P 500 is up only a little over 12% since April 2010 in a market environment that looks increasingly vulnerable, is a net long position now worth the risk?

Market Overview – What We Know:

  • Selling pressures on Minor Cycle surfaced again last Friday after brief recovery mid week with indexes last bid toward week’s lows.
  • At same time, larger Intermediate Cycle has become increasingly vulnerable as short-term losses have moved index pricing toward lower edge of defined 10-Week Price Channels (1340.58 / S&P 500) and downside “failsafe” levels of trend in effect since last October.
  • Intermediate Cycle also remains “Overbought” and vulnerable.
  • S&P 500 would need to better 1422.38 at April 2 intraday high to create new high for move and best levels since October 2011 lows while buying above upper edge of 10-Day Price Channel (1409.69 / Monday) would occur first.
  • Selling over past several days has created short-term “Oversold” condition as measured by our Most Actives Daily Ratio (.67 / Friday), but short-term “Oversold” conditions can persist in early stages of Intermediate Cycle decline.
  • Average price per share on NYSE Friday declined $1.02 to $57.10 with highest recent level reached March 15 at $61.48.
  • MAAD was net negative Friday with no issues positive and 20 negative. Weekly MAAD was also net negative with 2 issues higher and 18 lower.
  • Daily CPFL was sharply negative Friday by 5.42 to 1. Weekly CPFL was negative by 1.57 to 1. Both Daily and Weekly CPFL remain substantially below indicator resistance high put in place February 2011. 

Market Overview – What We Think:

  • Highs made by S&P 500 (1422.38) and Dow Jones Industrials (13297.11) on April 2 are looking increasingly like high for Intermediate Cycle begun last October 4 (1074.77 / S&P 500).
  • Best guess is that any “return action” over next several sessions in face of short-term “Oversold” conditions will falter this side of April 2 highs and that April 10 lows (1357.38 / S&P 500) could soon be breached on downside.
  • More short-term selling would seriously challenge lower edge of 10-Week Price Channels (1340.58 / S&P 500) while threatening to turn larger Intermediate Cycle negative for first time since last fall.
  • So long as Intermediate Cycle remains positive, however, we cannot rule out possibility bulls will muster enough buying power to keep intermediate trend alive. Nothing but strength above 1422.38 / S&P 500 would re-assert uptrend, however.
  • Recent failure of Weekly MAAD to better 2011 indicator highs, despite strength in major indexes above similar levels and marginal strength to new highs by Daily MAAD, is ongoing suggestion internal strength of market remains poor and that enthusiasm of Smart Money has been absent.
  • Cumulative Volume (CV) remains weaker than index pricing relative to 2011 highs in S&P 500, Dow 30, and NASDAQ Composite, thus underscoring lack of meaningful participation in market over past several months.

Next page: A look at the charts...

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