Stock market rally last week likely more frosting than cake

Weekly Review: Average price per share on NYSE gained $1.21 to $56.12

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

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1325.66

+47.62

+3.72%

Dow Jones Industrials

12554.20

+435.63

+3.59%

NASDAQ Composite

2858.42

+110.94

+4.03%

Value Line Arithmetic Index

2811.37

+102.54

+3.78%

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

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

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

First cometh the bounce. And after that what cometh? Probably the Ice Man. At least that’s our best guess for the moment. While last week’s gain on so-so volume dragged deeply “Oversold” stats higher, “Neutral” readings now prevail. And in an otherwise bearish trend, “Neutral” equates with “Overbought” in a bull move. In addition, those neutral readings developed in the vicinity of statistical resistance at the upper edge of defined 10-Day Price Channels that were fractured slightly on the upside via end of the week trading to suggest the short-term trend could be about to default to positive.

We say “default,” because in this kind of a market environment, a powerful reversal to the upside on increasing volume could prove to be a pipe dream. Last week’s numbers were positive, but there is an onus hanging over this market which may take more time to erase. By that we mean the larger Intermediate Cycle. Although that trend has provided some evidence “Overbought” conditions evident at the late March/early April highs have been eliminated to some extent, history suggests that just as with the Minor Cycle that became “Oversold” early on in the recent decline, the Intermediate Cycle can behave similarly. What we could see would be some additional improvement on the Minor Cycle that would be followed by a resumption of larger cycle selling that could lead to a decline back to and below the June 4 S&P 500 low at 1266.74.

Market Overview – What We Know:

  • Recovering in face of deeply “Oversold” short-term statistics, major indexes posted strong gains last week.
  • Prices in major indexes tended to stall toward upper edges of 10-Day Price Channels, however, as Trading Oscillators and short-term Momentum moved back toward “Neutral” territory.
  • Trading volume on NYSE rose a bit on week, but was still below normal.
  • Average Price per share on NYSE gained $1.21 to $56.12.
  • Given closing level of bellwether S&P 500 Friday and levels of 10-Day Price Channel in S&P, odds are good that unless sharp selling develops in market, Minor Cycle reversal would be suggested by default because Price Channel is declining in value as S&P prices remain unchanged or rise.
  • To suggest reversal of larger Intermediate Cycle to positive, S&P 500 must rally above 1401.48 through June 15.
  • Daily MAAD rallied with market last week, but remains weaker to extent indicator is at a level equivalent to S&P 1260 even though S&P closed last week near 1325.
  • Weekly MAAD was higher last week by 19 to 1, but continues to look weak on the long term.
  • Weekly CPFL was positive by 3.57 to 1, but remains in longer-term downtrend.

In terms of downside objectives in the S&P 500, if a “normal” 40% to 60% retracement of the rally since last October’s low (1074.77) to the April high (1422.38) develops, we continue to think a target from 1283-1213 is doable. In fact, while the S&P moved within that range via the June 4 low (1274.77), we suspect that weakness was merely an initial probe on the intermediate trend and that a new low could follow.

Market Overview – What We Think:

  • Strength in major indexes last week may have heartened bulls, but we suspect “Neutral” to moderately “Overbought” levels on the short-term trend will suffice to set up another selling opportunity on the Minor Cycle sometime within the next several sessions.
  • At this juncture, we do not think the March/April highs (1422.38—S&P 500) will be seriously threatened even if the short-term trend demonstrates some further upside follow-through.
  • If rebounding continues, we think it will merely serve to eliminate recent deep negatives more than providing a sustainable rally on larger cycles.
  • Best we could see within current intermediate negative context would be strength toward 1400 and upper edge of 10-Week Price Channel in S&P 500.
  • In event larger Intermediate Cycle resumes downward course, there could be weakness in S&P 500 toward 1283-1213 if “normal” 40% to 60% pullback develops as calculated from April S&P 500 high at 1422.38.

Why do we think a new low could follow?

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