Stock market intermediate cycle uptrend likely over

Weekly Review: Trend had been in place since October. What now?

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

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1369.10

-34.26

-2.44%

Dow Jones Industrials

13038.27

-190.04

-1.43%

NASDAQ Composite

2956.34

-112.86

-3.67%

Value Line Arithmetic Index

2934.04

-110.19

-3.61%

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

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

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

After several weeks of vacillation and apparent indecision, the stock market moved markedly lower last week and probably initiated the first leg down of an intermediate-term correction. Not only is the move since last October probably over, but corrective action will likely determine the staying power of the Major Cycle trend that has been toying with “Neutral” readings for months.

Although last week’s losses in the major indexes ranged from -1.43% in the Dow Jones Industrial average to -3.67% in the NASDAQ Composite, it is the setup into the recent highs that we find the most revealing. Not that the preliminary to the larger cycle top and subsequent weakness was necessarily typical, but the run-up had many of the characteristics of market topping action that has resulted in other healthy declines.

The first warning signs came with ongoing deterioration in Momentum. Weekly Momentum peaked mid-February and was unable to keep pace with prices in spite of new highs for the move in the S&P 500 and the Dow 30 on April 2. Unfortunately, those peaks were unaccompanied by any of the key major U.S. or world indexes. The Dow reached another short-term high in May 1, but, despite media fanfare, the move was strictly solo and proved to be unsustainable. Short-term Momentum peaked mid-March and never regained its upside footing.

Market Overview – What We Know:

  • Major indexes suffered modest losses last week. NASDAQ Composite index lost most (-3.67%) while Dow Jones Industrials lost least (-1.43%).
  • On negative market action, NYSE exchange volume rose nearly 3% last week.
  • Short-term trend in all indexes is now negative with Intermediate Cycle uptrend in effect since last October under serious threat.
  • Break below minor support in S&P 500 (1357.38) would suggest negative confirmation of Intermediate Cycle, but if that level is hit S&P would already have declined below lower edge of 10-Week Price Channel (1369.70) and downside “failsafe” point of intermediate trend.
  • Daily MAAD was negative Friday by 18 to 2 with Weekly MAAD negative by 18 to 1 and 1 issue unchanged. Daily MAAD was last plotted at new short-term low and was back to levels not seen since late January when S&P 500 was bid near 1300.
  • Average Price per Share rose 21 cents to $57.30 Friday, but highest recent average price level occurred March 15 at $61.48.
  • Daily CPFL was sharply negative Friday by 3.40 to 1 while indicator remains below April 9 short-term high. Both Daily and Weekly CPFL remain well below indicator resistance high put in place February 2011.
  • Cumulative Volume (CV) in S&P 500 Emini futures contract declined to new short-term low Friday while cash S&P 500 CV is not far behind. Both indicators remain well below 2011 highs.

The price of an Average NYSE share hit a high on March 15 at $61.48, a level that was not surpassed in subsequent action. Our Daily Most Actives Advance/Decline Line (MAAD) peaked March 20 and has been deteriorating ever since. In fact, Daily MAAD was last back to levels not seen since the end of January when the S&P 500 was quoted just above 1300. In other action, our Call/Put Dollar Value Flow Line (CPFL) hit a high on April 9 and also did not surpass that level, let alone the highs of February 2011.

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