Stock majors close to resistance, but key indicators lacking

Weekly Review: Can stock indexes continue making gains?

But despite strength, index prices moved higher on noticeably weaker volume. In fact, trading last week was running 40% to 50% below normal with a couple of sessions recording numbers well below a trailing, and falling, 10-day moving average. Clearly, participation has been diminishing as prices have moved back toward major resistance.

Market Overview – What We Think:

  • It remains to be seen if S&P 500 will be able to overcome resistance high (1422.38) put in place April 2 to re-assert major advance begun in March 2009. 
  • Noticeable and negative divergence by Daily MAAD in face of market strength since MAAD peaked July 3, is indication Smart Money has recently been exiting this market on strength. Unless negative disparity is erased, odds will continue to increase that short-term high, and possibly Intermediate peak, are imminent.
  • If market fails short of March/April highs (1422.38--S&P 500), turns negative on Minor Cycle, and then threatens reversal of Intermediate Cycle positive, long-term uptrend stretching back to March 2009 lows would almost immediately become an issue since trendline is now approximately coincident with June lows (1266.74—S&P 500). In other words, if June lows are fractured on renewed selling, odds would be good major advance since March 2009 would be finished.
  • If recent rally is legitimate and has more room to go on upside, we continue to wonder where’s indicator corroboration? We cannot remember instance where market powered higher on long term indefinitely without confirmation from key indicators.

There is also the problem with our Most Actives Advance/Decline Line (MAAD). After peaking back on July 3, the breadth indicator has confirmed none of the price advance since then to the extent MAAD rallied with prices to new short term highs. In fact, while the S&P 500 was last quoted toward 1420, Daily MAAD was suggesting the S&P ought to be closer to 1330. And even if Daily MAAD is able to better its July 3 high in the sessions just ahead, it would still remain 60% below its major resistance high put in place March 20 when the S&P was quoted near 1405. When coupled with the fact the Daily MAAD Ratio was last moving back toward moderately “Overbought” territory, there are indications the underpinnings of the rally underway since June 4 are weak and that Smart Money has been selling into strength.

Daily S & P 500 with Cumulative Volume (CV)

volume, cumulative, s&p

Weekly S & P 500 with Cumulative Volume (CV)

cumulative, weekly, s&p

 

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