Market rallies in tune with short-term oversold conditions

Larger intermediate cycle remains overbought

Stock index, chart, bull shadow Stock index, chart, bull shadow

Market Snapshot for session ending 4-17-12:

 

Last

Day Change

%Change

S&P 500 Index

1390.78

+21.21

+1.55%

Dow Jones Industrials

13115.54

+194.12

+1.50%

NASDAQ Composite

3042.82

+54.42

+1.82%

Value Line Arithmetic Index

3002.62

+46.74

+1.58%

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

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

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

Market Overview – What We Know:

  • More volatility surfaced in stock market Tuesday as major indexes posted modest gains in tune with Short-term trend “Oversold” conditions as reflected by our Daily MAAD Ratio (.65/Tuesday). Larger Intermediate Cycle remains “Overbought.”
  • Trading volume on NYSE declined another 4% Tuesday.
  • S&P 500 remains above supporting trend line stretching back to October 2011 low.
  • Intermediate Cycle remains vulnerable via short-term losses that moved index pricing toward lower edge of defined 10-Week Price Channels (1340.58 / S&P 500 through 4-20) and downside “failsafe” levels of trend in effect since last October.
  • 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 (1398.28 / Wednesday) would occur first.
  • Average price per share on NYSE Tuesday improved by $1.00 to $58.57. Highest recent Average Price level was reached March 15 at $61.48.
  • MAAD was sharply positive Tuesday with 19 issues advancing and 1 declining. Best recent level in Daily MAAD occurred March 20.
  • Daily CPFL was positive Tuesday by 1.13 to 1. Both Daily and Weekly CPFL remain substantially below indicator resistance high put in place February 2011.

Market Overview – What We Think:

  • Short-term conditions have created temporary buying opportunity, but we suspect any movement by “Overbought/Oversold” oscillators back to neutral would be good enough to set market up for another rounding of selling on Minor Cycle.
  • Highs made by S&P 500 (1422.38) and Dow Jones Industrials (13297.11) on April 2 are looking increasingly like peak 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.
  • But so long as Intermediate Cycle remains positive, 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.
  • 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 remains absent.

Click charts to enlarge

stock, index, cumulative volume, s&p

stock, index, cumulative volume, s&p, e-mini

 

Index

Daily/Weekly/Monthly Stops

Weekly

Monthly

 

4/16

4/17

4/18

4/19

4/20

4/20

4/30

S&P 500 Index

BUY 1409.69

BUY 1404.43

BUY 1398.28

BUY 1395.37

BUY 1392.83

BUY 1340.58

SELL 1178.00

Dow Jones Industrials

BUY 13177.02

BUY 13127.78

BUY 13068.85

BUY 13043.49

BUY 13021.93

BUY 12769.45

SELL 11223.60

NASDAQ Composite

BUY
3098.26

BUY 3088.69

BUY 3075.85

BUY 3070.13

BUY 3063.19

BUY 2894.43

SELL 2492.41

Value Line Index

BUY 3064.13

BUY 3045.61

BUY 3025.61

BUY 3017.11

BUY 3009.63

BUY 2947.00

SELL 2564.71

Note: Stop levels, a function of the extant trend, are based on the trailing moving average price channels for the Highs or the Lows of an index. Whether or not a specific index is suggesting a “Buy” or Sell” is determined by whether or not index prices are above or below the current channel Stop levels. Stop levels should only be used as an entry or exit guide and in conjunction with other market entry and exit strategies.

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