Short-term stock market low may be in

Despite strength, trading volume shrank by 31% on NYSE

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

Market Snapshot for session ending 5-21-12:

 

Last

Day Change

%Change

S&P 500 Index

1315.99

+20.77

+1.60%

Dow Jones Industrials

12504.48

+135.10

+1.09%

NASDAQ Composite

2847.21

+68.42

+2.46%

Value Line Arithmetic Index

2806.21

+58.32

+2.12%

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:

  • Finding support near 200-Day Lines in deeply “Oversold” short-term environment, major indexes posted strong gains Monday.
  • Despite strength, trading volume on NYSE shrank more than 31% Monday.
  • Short-term trend remains negative as does larger Intermediate Cycle. Major Cycle remains near “Neutral.”
  • In just over six weeks since S&P 500 hit short to intermediate-term high on April 2 (1422.38) major indexes have lost nearly one half of gains accumulated in same indexes over previous seven months.
  • Daily MAAD perked higher Monday after hitting new short-term low last Friday. Daily MAAD Ratio rose slightly to .40 from .37 and remains “Oversold.”
  • CPFL was higher Monday and broke 12 straight losing sessions with a net positive CPFL Ratio of 1.60 to 1. Indicator nonetheless remains in short to intermediate term negative trennd.
  • Cumulative Volume (CV) rose in both S&P 500 cash index and S&P 500 Emini futures contract Monday, but remains within context of short to intermediate term negative.

Market Overview – What We Think:

  • Last Friday’s lows (1291.98—S&P 500) may prove to be bottom of the short-term decline that began after the April 2 highs (1422.38 –S&P 500). But it’s too soon to tell. Basing action must develop and trailing 10-Day Price Channels must be penetrated on upside to confirm a reversal of the short-term trend to negative (1363.88—S&P 500 through Tuesday).
  • Even as “Oversold” readings take hold and a near-term bottom is formed, attempting to “bottom fish” a still tentative market could prove to be problematic.
  • And even when Minor Cycle retracement begins, we suspect it will prove to be short-lived and will do little more than erase “Oversold” readings prior to resetting market for another down leg within context of intermediate negative.
  • Best guess on how far entire intermediate negative will carry would be toward 1283-1213 if “normal” 40% to 60% pullback develops.
  • Until proven otherwise, we must regard Intermediate Cycle selling as no more than corrective action within framework of Major Cycle positive.
  • Since majority of our key indicators did not confirm market strength into recent highs, we cannot rule out possibility more weakness might occur. Such selling could bring market pricing into line with negative indicator divergences.

Click charts to enlarge

stock, index, chart, technical analysis

stock index, cumulative volume, emini

 

Index Daily / Weekly / Monthly Stops Weekly Monthly
 

5/21

5/22

5/23

5/24

5/25

5/25

5/31

S&P 500 Index

BUY
1370.35

BUY
1363.88

BUY
1358.10

BUY
1350.69

BUY
1342.10

BUY
1401.19

SELL
1175.98

Dow Jones Industrials

BUY
12984.98

BUY
12927.50

BUY
12874.05

BUY
12810.48

BUY
12737.61

BUY
13167.28

SELL
11273.01

NASDAQ Composite

BUY
2965.47

BUY
2954.38

BUY
2943.05

BUY
2928.08

BUY
2907.01

BUY
3069.29

SELL
2485.38

Value Line Index

BUY
2944.34

BUY
2929.45

BUY
2916.88

BUY
2899.51

BUY
2876.41

BUY
3061.08

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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