Stock market intermediate cycle uptrend likely over

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

On the price front, all of the major indexes are currently bid below the lower edges of defined 10-Day Price Channels to confirm a short-term negative. Near-term negativity is about to play out and with decision on the larger Intermediate Cycle. While the Dow was last holding marginally above the lower edge of its 10-Week Price Channel, we suspect that “failsafe” level will soon be erased. At the same time, the S&P 500 is about to sink below its weekly Price Channel by default (even if the S&P remains unchanged during the upcoming week) while the NASDAQ Composite and the Value Line index that are both weaker than the S&P 500 and the Dow are already in an Intermediate Cycle negative mode.

Market Overview – What We Think:

  • Odds are good uptrend underway since last October 4 is over.
  • Question now developing is how far weakness will carry and what will be the implications for larger Major Cycle that has been hovering near “Neutral” for months?
  • Since odds are good weakness will soon develop below lower edge of 10-Week Price Channels (1369.70—S&P 500) at statistical support and minor support (1357.38—S&P 500), how quickly market becomes “Oversold” and where prices stabilize will determine severity of decline.
  • Given ongoing “reluctance” of the majority of our key indicators to confirm market strength into recent highs, next presumption could be that selling could carry on downside far further than many market practitioners expect.
  • Three indicators, MAAD, CPFL, and CV that measure Smart Money bias, sentiment, and the power of buying continue to indicate market underpinnings remain weak and that price action could adjust accordingly.

Near-term price oscillators remain toward “Overbought” levels to suggest ongoing price vulnerability. At the same time, our Daily MAAD Ratio that relies on Most Actives inputs for calculation remains “Oversold.” But the problem with “Oversold” in the early stages of an intermediate-term reversal to negative is that negativity is actually a correct assessment of the market’s status rather than a suggestion prices are in a zone of opportunity. Since the larger Weekly MAAD Ratio remains near “Neutral” it’s possible the larger cycle is reflecting selling pressure while the smaller Daily trend will simply stay “Oversold” while staying negative. In other words, the negative bias of Daily MAAD is currently correct.

Daily S & P 500 Index with Cumulative Volume

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Weekly S & P 500 Index with Cumulative Volume

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So what’s to come?

The Intermediate Cycle uptrend that began the first week of October in the major indexes is probably finished. And the excesses created by that uptrend must be corrected. The “Overbought” conditions must be eliminated and the market must reset in a zone of opportunity. But the problem is the same problem we have been underscoring for months – many of our key indicators have not liked the rally that followed the October lows to the extent they did not confirm it. Only Daily MAAD rallied slightly above its May 2011 highs. The indicator has since fallen back.

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