Market range bound, while intermediate uptrend in balance

Stock market, technical analysis

Market Snapshot:

Retrospect is a beautiful thing isn’t it? Coulda bought Netflix at $2 and change for a ride to $304 before it cratered. Or coulda bought Apple at 7-plus for a ride to $600. Actually the key word here is “shoulda” since coulda is too late, given the fact another thing has been made abundantly clear since last October’s lows -- erring on the side of caution has been a bad play. Depending on how they were counted, each of the several short-term pullbacks was followed by strength in the major indexes to new highs for the move.

But inevitably the point comes when that last short-term rally is, indeed, the last short-term rally. Question now is whether or not the minor uptrend that followed the April 10 low (1357.38—S&P 500) with a subsequent test on April 23 (1358.79—S&P 500) will have the legs to overcome the April 2 short-term peak made in the S&P 500 (1422.38) with confirming action in the Dow Jones Industrial Average (13297.11). We underscore “confirming” since none of the other major indexes we follow or any of the major international indexes also confirmed that strength in the S&P or the Dow into the recent highs.

Market Overview – What We Know:

• Market gains in major indexes last week not only asserted strength on newly initiated short-term uptrend, but also kept intact Intermediate Cycle that was briefly jeopardized via short-term selling into April 10 lows.
• Big question now is whether or not Minor Cycle advance is mere retracement after creation of Intermediate Cycle high (1422.38—S&P), or a resumption of larger trend in effect since last October.
• MAAD Daily and Weekly Ratios were last plotted near “Neutral” to suggest overall market neutrality on Minor and Intermediate Cycles.
• Selling below lower edge of 10-Week Price Channel at 1361.46—S&P 500 (through 5/4) would be first such weakness below weekly price channel since last fall.
• Trading Volume on NYSE was little changed from previous week last week, but Average Price per Share rose 71 cents to $58.38 over five day period. Highest recent average price level occurred March 15 at $61.48.
• Until S&P 500 is able to better April 2 high at 1422.38, suggestion remains that broad market may have put in place an Intermediate Cycle high. Weakness below S&P 500 at 1357.38 hit on April 10 would have bearish implications.
• Daily MAAD was positive Friday by 11 to 9 with Weekly MAAD also positive by 12 to 8. Most recent Daily MAAD peak was made March 20. Weekly MAAD peaked week ending March 30.
• Daily CPFL was positive Friday by 1.28 to 1, but remains below April 9 short-term high while Weekly CPFL was positive by 4.87 to 1. Both Daily and Weekly CPFL remain substantially below indicator resistance high put in place February 2011.
• There’s also the fact that strength over the past several days has moved the venerable Dow 30 back within range of its April 2 high. Last Friday the Dow 30 was only 30.43 points from that point, or .22%. The S&P on the other hand, needs another 1.10% to better its April 2 peak.

In the face of short-term statistics that have erased “Oversold” conditions over the past two weeks with Momentum, our Trading Oscillators, and the MAAD Daily Ratio last ranging from “Neutral” to moderately “Overbought,” there’s still a chance strength since the recent short-term lows could prove to be merely a rebound within what could prove to be the development of an Intermediate Cycle top.

Market Overview – What We Think:

• Until April 2 intraday low at 1422.38—S&P 500 is surpassed on upside or until April 10 intraday low at 1357.38—S&P 500 is fractured on downside, larger Intermediate Cycle underway since last October lows (1074.77—S&P 500) will remain intact. 
• Relative market neutrality reflected in MAAD Daily and Weekly Ratios suggests market indecision may soon be resolved. Bullish view would suggest recent weakness has been merely setup for further gains while bearish stance would indicate near-term strength will fail and prove to be return action rally in developing Intermediate Cycle top.
• If new highs are not created, ongoing failure could ultimately mean Intermediate Cycle high has been put in place and weakness should follow. New highs would reassert uptrend in effect since last October.
• Best guess is that near-term rebounding will fail this side of April 2 highs and that April 10 lows (1357.38 / S&P 500) will be breached on downside relatively soon.
• More short-term selling would not only break minor support (1357.38—S&P 500), but would also seriously challenge lower edge of 10-Week Price Channels (1361.46 / S&P 500) while threatening to turn larger Intermediate Cycle negative for first time since last fall.

But since the bellwether S&P 500 continues to hold above the lower edge of its defined 10-Week Price Channel (1361.46), the downside “failsafe” level for the Intermediate Cycle, we cannot preclude the possibility market strength will prove to be just another pullback within the context of the trend that has persisted since October. The most recent pullback and subsequent recovery may be another example of sellers being unable to overcome the buying impetus that has persisted for months.

In the wings, however, there are some indicators that continue to highlight what look like weak underpinnings of this market on the longer-term.

Fifth, our measurement of market sentiment, the Call/Put Dollar Value Flow Line (CPFL) remains remarkably below its 2011 highs. That divergence is an ongoing suggestion that options players have not been enthusiastic about this market for months and that their tendency toward marginal longs could quickly be erased via a new round of weakness.

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.

In sum, the intermediate uptrend in effect since last October remains intact, despite recent threats on the Minor Cycle that have been erased to some extent. What now remains to be seen is if the short-term advance initiated after the April 10 lows (1357.58—S&P 500) will prove to be yet another short-term pullback in the trend that was initiated last fall. The proof will be the market’s ability to overcome near-term resistance at the late March and April second highs (S&P 500—1422.38 and Dow 30—13297.11), so causing a resumption of that larger trend. If not, then we would look for the development of more concerted corrective action on the Intermediate Cycle and a noticeable retracement of the advance since October.

McCurtain Most Actives Advance/Decline Line (MAAD)

Neutrality currently prevails as measured by the MAAD Daily and Weekly Ratios. The primary differences between the two, however, is that the Daily series has reached “Neutral” after rising from a short-term “Oversold” condition while the Weekly Ratio has attained “Neutral” by declining from “Overbought” levels. The variances could mean that the short-term trend is correcting with the context of a newly developing Intermediate Cycle negative. Or it could mean that by returning to “Neutral,” the Intermediate Cycle is adjusting prior to a resumption of the trend underway since last October.

The deciding factor will be the action of pricing relative to the recent highs (1422.38—S&P 500), the April 10 lows (1357.38—S&P 500), and the proximity of pricing to the lower boundaries of defined 10-Week Price Channels (1361.46—S&P 500).

There is also the lingering negative divergence between Daily MAAD that reached marginal new highs on March 20 at levels somewhat higher than the indicator peak on the Daily cycle in 2011, and the fact that Weekly MAAD has yet to better similar levels.

Click charts to enlarge

McCurtain Call/Put Dollar Value Flow Line (CPFL)

CPFL improve marginally last week, but the sentiment indicator remains below its April 9 short-term highs. More importantly, it remains well below its late February 2011 highs on both the Daily and Weekly cycles to suggest that options players on a net basis have not bought as many Call options on a Dollar Value basis as they bought Puts in previous sustained rallies.

The variance in CPFL this time around, as compared to previous periods, is yet another signal the rally since October 2011, let alone since March 2009, does not have the same statistically positive underpinnings as other uptrends during previous bull phases.

Click charts to enlarge

Conclusion

The stock market remains range bound by the late March/early April highs (1422.38—S&P 500) and the April 10 short-term lows (1357.38—S&P 500). While it could be presumed recent short-term action is merely another setup for a resumption of strength on the larger Intermediate Cycle, nothing but buying above recent short-term highs would confirm that notion. On the other hand, an upside failure above the recent highs, selling below recent lows, and a coincident fracturing of the lower edges of 10-Week Price Channels (1361.46—S&P 500) would almost certainly confirm a reversal of the Intermediate Cycle in effect since last October to negative.