Stock market equivocates: Minor Cycle holds key

Weekly Review: Weekly NYSE trading volume rose 45% last week

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

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1356.78

+2.10

+.15%

Dow Jones Industrials

12777.09

+4.59

+.03%

NASDAQ Composite

2908.47

-28.63

-.97%

Value Line Arithmetic Index

2881.77

-26.94

-.92%

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

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

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

Over the past decade or so there have been a number of “Bubbles” that have imploded. In 2000 the Tech Bubble was followed by a two year bear market and the S&P 500 lost 50%. The Real Estate Bubble that was punctured in mid-2006 has yet to be fully resolved, but so far average losses have exceeded those incurred during the Great Depression when residential real estate sank 26%. And then in the fall of 2007, the Financial Bubble deflated and the S&P 500 lost 58%.

Bubbles…

Recently the stock market has been experiencing “Balloon-like” symptoms. Rather than having us get into a wordy description of the metaphor, imagine a youngster attempting to push his sturdy, and fully inflated, dime store balloon under the waters of a back yard swimming pool. Each time he pushes the egg-shaped sphere downward and lets it go, it pops back. The stock market has been mimicking that action since the late March/early April highs (1422.38—S&P 500). Each downward thrust has been followed by a rebound.

Market Overview – What We Know:

  • Major indexes, as measured by S&P 500, were last holding toward “Neutral” on all cycles including Minor, Intermediate, and Major.
  • But strength late last week was threatening to turn Minor Cycle positive (above upper edge of 10-Day Price Channel at 1359.79—S&P through Monday) while challenging upper edges of 10-Week Price Channels (1353.07—S&P 500 through 7/20 already fractured).
  • Short-term Trading Oscillators remain somewhat vulnerable, however, even though MAAD Daily Ratio is “oversold” at .86. MAAD Weekly Ratio was last at .85.
  • Weekly NYSE trading volume rose 45% last week, but increase was compared to previous week’s low holiday activity with market closed one session of five. On relative basis weekly volume remains sub par. Average Price per Share on week rose 70 cents to $58.98.
  • Daily MAAD was positive Friday by 17 to 3 while Weekly MAAD was negative by 7 to 13. Daily MAAD was last plotted at level equivalent to S&P 500 price of about 1320 while Weekly MAAD was closer to 1290. Both suggest Smart Money is not as enthused about index prices as indexes would suggest.
  • Daily CPFL was positive Friday by 3.24 to 1 while Weekly CPFL was negative by 1.44 to 1.
  • Cumulative Volume (CV) in S&P 500 and S&P 500 Emini futures contract has been moving in synch with index prices recently, but both remain generally weaker than S&P 500 price on larger cycles.

After the S&P put in place its short to intermediate high nearly three months ago, the bellwether corrected nearly 45% of the gain since the October 2011 lows (1074.77). A normal pullback usually falls in the 40% to 60% range. So the corrective action in the S&P in that context was “normal.” Then came a retracement of the losses since the April 2 S&P high through the June 4 low. Prices recovered a “normal” 58% to the July 3 high at 1374.81.

Which brings us up to date in the wake of last Friday’s strong gains. After negatively toying with the lower edges of 10-Day Price Channels for most of last week and defined uptrend lines stretching back to the June lows, all of the major indexes powered higher Friday. While it’s true the S&P and the Dow 30 did most of the heavy lifting Friday and on the week, it wouldn’t take a lot more buying to recommit the Minor Cycle to positive while pushing the larger Intermediate trend back into positive territory.

Market Overview – What We Think:

  • Last Friday’s 22.02 point gain in S&P 500 and 203.82 point advance in Dow 30 have put Minor and Intermediate Cycles in limbo. Further gains, however, will not only turn Minor Cycle positive, but they could put positive pressure on larger intermediate trend. April 2 high at 1422.38—S&P 500 would then come sharply into focus.
  • If more follow through strength does not develop, our larger suspicion, we would look for weakness this week back below uptrend lines (toward 1340—S&P 500) stretching back to June lows. Such action would confirm fact that 58% retracement of losses from early April to early June is over and that recent highs (1374.81—S&P 500) will not be exceeded any time soon.
  • Poor showing of Daily and Weekly MAAD continues to linger in back of our technical mind as indication underpinnings of this market remain weak. But decision on that score must come with price breakdown.
  • Status of short and intermediate cycles will ultimately determine outcome of larger and more important Major Cycle trend that has been underway since March 2009. That trend, however, has had weaker statistical underpinnings than other long-term rallies over past decade-plus.

That’s unless strength was merely a post-holiday upside flurry on so-so volume. Underscoring that latter notion, while Daily MAAD moved up from a low made last Thursday via Friday’s buying, and while the S&P was last quoted at 1356.78, Daily MAAD was last plotted at an equivalent S&P price level of just under 1320. That variance is another way of saying the internal status of the market as reflected by Daily MAAD is weaker than the broad market. Which is another way of saying Friday’s rally may have been more of an upside feint than the beginning of a trend reversal on the Minor Cycle.

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