Market rallies in tune with short-term oversold conditions

Stock index, chart, bull shadow

Market Snapshot for session ending 4-17-12:

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.

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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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