S&P 500 at intermediate high, but big picture uptrend tepid

Are strong gains fleeting?

Market Overview – What We Think:

  • While last week’s gains pushed S&P 500 and NASDAQ Composite index above March/April highs, failure of Dow 30, Value Line index, and all of our key indicators to confirm strength leaves pall over market that has persisted since spring of 2011.
  • In fact, with S&P 500 only having gained 4.9% since May 2011 high (1370.58) through last Friday, we continue to wonder if market risk in face of indicator deterioration is worth the longer-term exposure.
  • From purely long-term perspective, nothing but strength above October 2007 S&P 500 high (1576.09) would give this market a bullish imprimatur equal to that the market experienced from 1994 through mid-1999 when prices and indicators were fully in synch.
  • Fact is, since 2000, longer-term rallies by market have become increasingly labored relative to indicator performance.
  • As a consequence, without strong follow through on upside by indexes and our indicators that remain weak, we must regard last week’s gains with suspicion, especially considering fact market is entering time of year that has proven to be historically vulnerable -- think 1929, 1987, and 2007.
  • Ongoing negative divergence by MAAD on both Daily and Weekly cycles reflects fact Smart Money has been looking askance at equities on both trends, despite recent gains. Current negative MAAD divergence is largest we have seen since October 2007.

But here’s the problem. Since its high May 2, 2011, the S&P has only gained 4.9% over the past 16 months. Coincident with those price highs in May 2011, ALL of our key indicators peaked and NONE have surpassed their 2011 highs since then. Our Most Actives Advance/Decline Line (MAAD), Call/Put Dollar Value Flow Line (CPFL), Cumulative Volume (CV), and Momentum on all cycles have all failed over the past 1 ½ years to make new highs with index pricing.

Daily S & P 500 with Cumulative Volume (CV)

cumulative, volume, s&p

Weekly S & P 500 with Cumulative Volume (CV)

cumulative, volume, emini

In the face those statistical divergences any observer is justified in saying, “So what? Prices have moved higher.” No denying that assertion, but from our point-of-view, when the market enters a period when gains become more labored and there is no confirmation from indicators that have solid historic records, then what’s an investor to do?

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