Stock market bottom picking like catching falling knife

Trading volume on NYSE rose Thursday

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

Market Snapshot for session ending 5-17-12:

 

Last

Day Change

%Change

S&P 500 Index

1304.86

-19.94

-1.51%

Dow Jones Industrials

12442.49

-156.05

-1.24%

NASDAQ Composite

2813.69

-60.35

-2.10%

Value Line Arithmetic Index

2776.02

-59.85

-2.11%

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

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

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

Market Overview – What We Know:

  • Further selling in major indexes Thursday steepened angle of short-term decline.
  • MAAD Daily Ratio has slipped into historically “Oversold” zone (.36) on Minor Cycle.
  • Intermediate Cycle remains negative while Major Cycle is “Neutral.”
  • Trading volume on NYSE rose Thursday by nearly 8% as Average Price per share declined 63 cents to 55.85. Highest recent average price occurred on March 15 at $61.48.
  • All indexes remain below lower edge of 10-Week Price Channels and continue to underscore validity of intermediate term negative.
  • Daily MAAD sank to another short-term low Thursday and was last at level equal to late December S&P 500 price of 1270.
  • CPFL was negative Thursday by 4.24 to 1 and remains below April 9 short-term high.
  • Cumulative Volume (CV) in S&P 500 cash index and S&P 500 Emini futures contract declined to new short-term lows Thursday.

Market Overview – What We Think:

  • Further market losses Thursday in face of already “Oversold” short-term conditions highlight fact that “Oversold” is of little tactical meaning early in new Intermediate Cycle decline since such conditions can persist. Eventually “Oversold” readings will take hold and a near-term bottom will be put in place, but in meantime attempting to “bottom fish” a declining market is a lot like attempting to catch a falling knife.
  • Once any Minor Cycle retracement begins, however, we suspect it will prove to be short-lived and will do little more than erase “Oversold” levels prior to resetting market for another down leg within context of intermediate negative.
  • Best guess on how far this intermediate correction will carry would be toward 1283-1213 if normal 40% to 60% pullback unfolds.
  • But until proven otherwise, we must regard Intermediate Cycle selling as no more than corrective action within framework of Major Cycle positive.
  • We also cannot disregard fact that majority of our key indicators did not confirm market strength into recent highs and that more weakness could bring market pricing into line with those negative indicator divergences.

Click charts to enlarge

s&p, stock index, technical analysis, cumulative volume

stock, index, cumulative volume, emini

 

Index Daily / Weekly / Monthly Stops Weekly Monthly
 

5/14

5/15

5/16

5/17

5/18

5/18

5/31

S&P 500 Index

BUY 1396.82

BUY 1391.79

BUY 1385.89

BUY 1380.88

BUY 1376.49

BUY 1400.66

SELL 1175.98

Dow Jones Industrials

BUY 13213.51

BUY 13176.66

BUY 13126.36

BUY 13081.20

BUY 13038.93

BUY 13163.73

SELL 11273.01

NASDAQ Composite

BUY 3036.10

BUY 3020.45

BUY 3004.57

BUY 2990.46

BUY 2980.13

BUY 3064.63

SELL 2485.38

Value Line Index

BUY 3011.34

BUY 2997.33

BUY 2981.62

BUY 2969.13

BUY 2957.86

BUY 3069.54

SELL 2543.91

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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