Stock indexes target intermediate cycle highs -- or death knell rings

Market complexity high as cycles converge

Stock index, chart, technical analysis Stock index, chart, technical analysis

Market Snapshot:



Week Chg

Week %Chg

S&P 500 Index




Dow Jones Industrials




NASDAQ Composite




Value Line Arithmetic Index




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

There are times when the stock market assumes some of the characteristics of Three Dimensional Chess when the complexity factor increases (remember Tri Dimensional Chess as played by Spock in Star Trek?). A “normal” chess game involves two players using black and white chess pieces on a single board. In Three Dimensional Chess multiple boards are used and chess pieces can be moved across those multiple boards. The term “3D” is derived from the fact the boards can be stacked vertically.

This is one of those times when the levels of market complexity increase with variances in index pricing, indicator divergences, and sentiment that mimic the intricacies of Three Dimensional Chess.

Market Overview – What We Know:

  • Major indexes finished last week with somewhat mixed readings. While S&P 500, Dow Industrials, and Value Line indexes were marginally positive, broad-based NASDAQ Composite was somewhat lower.
  • NYSE trading volume rose by more than 17% last Friday, but weekly activity declined by nearly 2%.
  • S&P 500 remains locked between recent short-term high at 1422.38 hit on April second and reaction low to 1357.38 hit on April 10. Movement above one or below other will determine staying power of larger Intermediate Cycle.
  • Price of average share on NYSE was higher by 5 cents to $57.62 Friday. Highest recent average share price occurred on March 15 at $61.48.
  • S&P 500 remains above supporting intermediate-term trend line stretching back to October 4, 2011 low (1365.00).
  • Larger intermediate trend remains viable until lower edge of defined 10-Week Price Channel (1340.58 / S&P 500 through 4-20) and downside “failsafe” levels of trend in effect since last October.
  • Daily MAAD was negative Friday with 7 issues higher and 13 lower. Best recent level in Daily MAAD occurred March 20. Weekly MAAD was positive by 10 to 9 and Weekly MAAD Ratio was last toward “Neutral” at 1.21.
  • Daily CPFL was negative Friday by 1.20 to 1 while Weekly CPFL Ratio was negative by 2.16 to 1. Both Daily and Weekly CPFL remain substantially below indicator resistance high put in place in February 2011.

In trending market moves, there are points when all cycles are in synch. They are, in effect, operating in the same dimension, for example, when prices are overtly bullish. Session after session prices trend higher. But there are other times when all the previously synchronous cycles are at odds and the market appears to be more chaotic and indecisive and when, in fact, cycle variances may be a “setup” for a change in trend. Some cycles may be going up, others may be declining, and still others may be exhibiting neutral characteristics. The recent stock market has been demonstrating the characteristics of such a conflicted mode and more dimensions are in play.

Since the price lows in the major indexes last October 4, the trend of index pricing has been higher. With the exception of half a dozen short-term pullbacks there has been no meaningful corrective action. At the same time, the larger Major Cycle has merely been hovering toward Neutral levels as measured by long-term Momentum. But recently, while the S&P 500 and the Dow Jones Industrial Average rallied to new highs for the move on April 2 (1422.38—S&P 500 and 13297.11—Dow 30), no major index anywhere in the world confirmed that strength. Given the old expression that “quality is always the last to go,” what are the implications of that divergence?

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