First, last week’s strength put the S&P right back at a trend line stretching back to its April high with a midway connecting point made May 1 (1415.32). Strength above that trendline would be bullish, but that action alone would not be good enough to suggest a resumption of the bull market initiated after the March 2009 lows, because that April 2 high at 1422.38—S&P 500 would remain.
Second, While the NASDAQ and Value Line index also gained last weak, their noticeable failure to also break above first resistance is a suggestion net market strength was more “blue” than secondary. In other words, the advance wasn’t as deep as action in the S&P and the Dow would suggest.
Market Overview – What We Think:
- We were admittedly surprised by the power of last Friday’s rally in S&P 500 and Dow 30, but not by failure of NASDAQ and Value Line indexes to follow suit. Market continues to look more “blue” than secondary.
- And while some of market undercurrents like improvement of CPFL data and strength in face of near-term “Oversold” conditions might be good enough to extend short-term gains within context of erratic rally since June lows, will tentative positive be good enough to cause prices to better late March/early April highs (1422.38—S&P 500) and major resistance? We will no doubt learn answer to that question soon.
- If prices do fail to follow through on upside, that failure would take on long-term implications since it would suggest market, as also reflected in lingering negativity by MAAD on both Daily and Weekly cycles, had lost upside steam. All that would be required then would be new short-term negative and downside break to turn Intermediate negative (below 1304.85—S&P 500).
- Hanging in balance is resumption of bull trend begun in March 2009.
Third, short-term Momentum and our trading oscillators, already positioned near “Neutral” prior to last week’s net gains, won’t need much more pushing before they are in “Overbought” territory. At the same time, the MAAD and CPFL Daily Ratios have already moved back to 1.12 and 1.77, respectively, after having rested in “Oversold” territory for a time. Similarly, MAAD and CPFL Weekly Ratios were moderately “Overbought” at 1.25 and 1.50.
Fourth, MAAD Daily and Weekly statistics continue to underscore the fact that Smart Money remains unimpressed with this market. While the S&P has recouped all but 23% of its losses, as measured from the April 2 high through the June 4 low, Daily MAAD remains nearly 75% below its April high. With Daily MAAD still hinting the S&P 500 ought to be closer to 1325 than 1385, we wonder just how much more buying can be engendered before the erratic rally began the first week of June will be over.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)
But there are also some bullish signs that need reporting.