Market resolves recent lateral action, but divergences persist

New upside potential?

Bull shadow, stock market, chart Bull shadow, stock market, chart

Market Snapshot for session ending 09-06-12

 

Last

Day Change

%Change

S&P 500 Index

1432.12

+28.68

+2.04%

Dow Jones Industrials

13292.00

+244.51

+1.87%

NASDAQ Composite

3135.81

+66.54

+2.17%

Value Line Arithmetic Index

3045.95

+62.31

+2.09%

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

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

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

Market Overview – What We Know:

  • Major indexes posted sharp gains Thursday and resolved recent lackluster action that had left index pricing in relatively narrow range for past two weeks.
  • Rally was also apparently justified by “Oversold” conditions in Daily MAAD and CPFL Ratios that had quickly corrected recent “Overbought” conditions.
  • But while S&P 500, NASDAQ Composite, and Value line indexes all bettered August 21 highs, action was not confirmed by Dow Jones 30. Also, only S&P 500 and NASDAQ bettered late March/early April highs. Dow 30 and Value line index did not.
  • Trading volume on NYSE increased about 9% Thursday and Average Price per Share rose $1.35 to $61.09. But despite S&P 500 price rise above April high, AVP remains below its best level at $61.48 made back on March 15.
  • Thursday’s strength caused short-term Momentum and our proprietary Trading Oscillators to flip back into positive territory, as S&P pricing rallied above upper edge of 10-Day Price Channel to suggest short-term reversal to positive. S&P would now have to decline below lower edge of 10-Day Price Channel (1404.13 through Friday) to indicate near-term reversal to negative.
  • Intermediate Cycle remains positive and needs weakness below lower edge of 10-Week Price Channel (1331.11 through September 7) to turn negative.
  • Daily MAAD was positive Thursday with 19 issues higher and 1 negative. MAAD Daily Ratio was “Neutral” (1.02). Daily MAAD remains below its July 3 high despite higher S&P 500 prices.
  • Daily CPFL was positive Thursday by 2.38 to 1. Daily CPFL Ratio was near “Neutral” (1.09). Indicator continues to hold below April resistance highs.
  • Cumulative Volume (CV) in S&P 500 rallied above August and April highs in cash S&P Thursday, but only above August CV high in S&P Emini.

Market Overview – What We Think:

  • While Thursday’s sharp gains pushed S&P 500 above August and April highs with confirming action in NASDAQ and Value Line indexes, failure of Dow 30, MAAD, CPFL, and Average Price per Share leaves some doubt as to sustainability of rally and whether or not strength was part of end game or re-assertion of Intermediate uptrend begun after June lows.
  • Short-term trend decisively reversed back to positive with strength above upper edge of 10-Day Price Channel (1414.48) Thursday, but short-term gain also pushed Intermediate Cycle a bit “tighter” in terms of already “Overbought” conditions to leave vulnerability on larger cycle.
  • Without confirming action on upside by Dow 30 and our indexes, we must regard Thursday’s gains with suspicion even though price action over past two weeks was resolved in terms of evolving “bull flag” patterns.
  • It is important to remember, however, that market is entering time of year that has proven to be historically vulnerable -- think 1929, 1987, and 2007.
  • Also, ongoing negative divergence by MAAD on both Daily and Weekly cycles reflects fact Smart Money has been looking askance at equities on both trends. Current negative MAAD divergence is largest we have seen since October 2007.

stock, cumulative, volume

emini, cumulative, volume

Index Daily / Weekly / Monthly Stops Weekly Monthly
 

9/3

9/4

9/5

9/6

9/7

9/7

9/30

S&P 500 Index

BUY
1416.49

BUY
1416.10

BUY
1415.70

BUY
1414.48

BUY
1413.94

SELL
1331.11

SELL
1256.02

Dow Jones Industrials

BUY
13219.18

BUY
13204.12

BUY
13189.98

BUY
13168.81

BUY
13159.88

SELL
12566.91

SELL
12029.08

NASDAQ Composite

BUY
3078.14

BUY
3080.45

BUY
3082.61

BUY
3082.67

BUY
3081.99

SELL
2853.56

SELL
2685.41

Value Line Index

BUY
2994.24

BUY
2992.89

BUY
2992.64

BUY
2990.88

BUY
2988.60

SELL
2799.47

SELL
2702.37

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