Price action, negative indicators push market to edge

Weekly Review: Stock market needs recovery to re-ignite bull

But first things first. What we do know currently is that the short-term trend is “Overbought” and that last Thursday’s selling created the potential for more market vulnerability on the Minor Cycle. While it’s also true “Overbought” conditions on any cycle are subjective to the extent such measurements can persist, what is relevant about current stats is that given the fact the larger intermediate trend is still negative, readings on the short-term cycle above “Neutral” have been suspect since our Daily MAAD Ratio, our key measurement of short-term OB/OS conditions, moved above “Neutral” back on June 13.

Market Overview – What We Think:

  • Given fact that bellwether S&P 500 index headed south last Thursday after tapping our upside measured move target at 1360 last Tuesday and Wednesday, there is suggestion short-term advance underway since June 4 could be over.
  • Also, considering currently “Overbought” short-term readings in our MAAD Daily Ratio and Trading Oscillators, there is a short-term statistical “overhang” that could weigh on the market in sessions just ahead.
  • Extent of short-term vulnerability will ultimately determine whether or not June 4 lows (1266.77—S&P 500) will hold. If they do, then Intermediate Cycle picture gets somewhat brighter. If they do not, then larger issues like weakness below 200-Day lines near 1300—S&P 500 and long-term uptrend line near 1225—S&P 500 should take on greater significance.
  • While some measurements of intermediate trend are currently registering “Oversold,” it’s important to remember OB/OS measurements can be somewhat subjective indication of market “temperature” and can persist in one direction or another for periods of time.
  • Considering last week’s downside price break with slight recovery last Friday notwithstanding, any near-term price improvement should be viewed with skepticism. We do not think March/April highs (1422.38—S&P 500) will be exceeded via rebounding.
  • If larger Intermediate Cycle resumes downward course and “normal” correction of advance since last October fully evolves, weakness in S&P 500 toward 1283-1213 could develop.

“But the intermediate trend is currently exhibiting ‘Oversold’ characteristics,” you say. True, but just as with the Minor Cycle, “Oversold” on the intermediate trend is also somewhat subjective. There could be a double downside bounce in the statistics. The Weekly MAAD Ratio makes an initial “Oversold” low and then bounces a bit higher as the short-term trend recovers, as with the recent bounce off the June 4 lows. The market “resets” and there is another round of selling that causes minor support to give way to new lows. But on that second round of weakness, the weekly OB/OS does not make a new low and operates a lot like Momentum to the extent it is suggesting the market may be losing its downward impetus and selling power is weakening. Of course, that realization may not help those who are still long and who were hoping that first low was the extent of the decline.

At this point, however, such suppositions are premature. While we suspect the Minor Cycle may be about to turn negative again, the bigger issue is whether the June 4 lows will give way to renewed selling pressures and just how much more weakness might follow if new lows are created.

Daily S & P 500 with Cumulative Volume (CV) 

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Weekly S & P 500 with Cumulative Volume (CV)

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