Stock market equivocates: Minor Cycle holds key

Daily S & P 500 with Cumulative Volume (CV)

Weekly S & P 500 with Cumulative Volume (CV)

Also, retracement of losses since early April was “normal,” the rebounding since the June lows should be over. That could mean Friday’s strength was more reflexive than assertive. Underscoring that notion is the fact our primary Trading Oscillators on the Minor Cycle remain positive, with one holding toward “Overbought.” The other moderately so. Which means that more buying will only push both back toward “Overbought” levels and near-term vulnerability sooner. Net selling would be required to move both into “Oversold” territory and zones of opportunity.

Daily S & P 500 Emini Futures contract with Cumulative Volume (CV)

Weekly S & P 500 Emini Futures contract with Cumulative Volume (CV)

And in the background sits the larger Intermediate Cycle that has continued to threaten on the downside over the past several weeks, but with only modest conviction. Neutrality prevails. If it turns out the near-term trend is in an endgame and that last Friday’s strength is unsustainable, a short-term reversal to negative would force intermediate neutrality back into the negative column. If, however, the short-term trend has more legs than we think and the S&P 500 July 3 high at 1374.81 is surpassed as index pricing moves decisively above 10-Week Price Channels (the S&P is already above 1353.07 and this week’s level by default through July 20), those April highs (1422.38—S&P 500) and major resistance would come into sharper focus.

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.

In sum, from a strategic point-of-view, we are leaning toward a more negative resolution of near-term neutrality in the sessions just ahead. That tone should affect the larger Intermediate Cycle. But our conviction is tempered at about 55% negative to 45% positive and could easily flip to a more favorable tone if those recent highs (1374.81—S&P 500) are overcome with a new round of buying. In other words, the kid’s balloon must succumb to downside pressure by sinking, and soon. The only way that’s going to happen is if it pops under pressure. The appropriate market action in that case would be through concerted selling.

McCurtain Most Actives Advance/Decline Line (MAAD)

Daily MAAD, as opposed to S&P 500, put in place a short-term high on July 3 and has yet to seriously challenge that level. In fact, Daily MAAD on an equivalent basis was last plotted at an S&P price of about 1320 while the S&P 500 was nearly 40 points higher. That variance suggests Daily MAAD and the Smart Money it mirrors remain less enthusiastic about index pricing than recent pricing would suggest. Amplifying that suggestion, while the S&P retraced nearly 58% of the losses suffered from April 2 (1422.38) through the June 4 low (1266.77), Daily MAAD came back only about 30% in that same time frame. And while the S&P was last holding at about the 50% in that April/June range, Daily MAAD was near the 20% level. Using Weekly MAAD data, the indicator was last at an S&P price equivalent of about 1300 to demonstrate that even more pronounced internal MAAD weakness on the longer term is apparent.

It’s true that both Daily and Weekly MAAD Ratios are currently holding toward “Oversold” levels at .86 and .85, respectively. But it’s also true that “Oversold” conditions can persist for extended periods of time and that, on occasion, all they may be reflecting is a negative tone rather than a buying opportunity.

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McCurtain Call/Put Dollar Value Flow Line (CPFL)

There’s little new to report in CPFL on either the Daily or Weekly cycles. The indicator remains locked between lows made back in December and highs made in early April. Beyond those two levels, the indicator has been in a trading range for the better part of the past year and remains noticeably below major highs created the week of February 25, 2011.

Options players, despite noticeable strength in CPFL off of the March 2009 lows, have not been net buyers of options of a Call Dollar Value basis for nearly a year and a half. In fact, following that February 2011 indicator peak and despite a strong price rally that followed the October 2011 lows, CPFL remained decidedly lackluster by failing to also make new highs with the major indexes. That failure to move upward with price is a notable sign that one market group, options players, remains wary of equities.

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Conclusion

Lower than normal trading volume has been coincident with neutral to slightly higher stock prices over the past few weeks. That price action has, by default, been challenging the upper edges of 10-Day and 10-Week Price Channels. If those levels are decisively penetrated in the sessions just ahead, resistance highs put in place in late March and early April (1422.38—S&P 500) will come sharply into focus since strength above those points would re-assert the long-term uptrend begun in March 2009.

If, however, upside price challenges prove to be no more than failed attempts to unseat nervous shorts and tentative buyers, we would look for a relatively quick resolution to near-term equivocating with ensuing selling. Negativity could reverse the Minor Cycle back to negative and that action could re-assert the larger Intermediate Cycle on the downside. Some of our key indicators such as Daily and Weekly MAAD underscore the potential for negative resolution of current market neutrality.

*Note: Unchanged issues are not counted.

**Note: All data is for calendar week ending on Friday even though ending date may be a holiday. Unchanged issues in MAAD calculations are not counted.