Short-covering saves stock market from Sunday night losses

Stock index, chart, technical analysis

Market Snapshot for session ending 5-7-12:

Market Overview – What We Know:

• Despite sharp overnight losses in S&P Emini futures contracts in early trading Sunday night, prices quickly stabilized and rallied until mid-afternoon Monday. Price action, however, will likely turn out to be short-covering in Minor Cycle negative trend.
• Short-term remains negative while larger Intermediate Cycle remains under threat.
• In mixed market action, NYSE exchange trading volume declined nearly 9% Monday.
• 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 near Neutral Monday with 10 issues higher and 9 lower. Daily MAAD Ratio remains near Neutral (.92). Daily MAAD hit a new short-term low last Friday at a level not seen since late January when S&P 500 was bid near 1300.
• Average Price per Share rose 61 cents to $57.91 Monday. Highest recent average price level occurred March 15 at $61.48.
• Daily CPFL was sharply negative Monday by 1.29 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 last Friday while cash S&P 500 CV is not far behind. CV indicators for both remain well below 2011 highs

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.

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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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