Stock market advances despite half-hearted indicator confirmation

Analyzing failure

Stock index, chart, technical analysis Stock index, chart, technical analysis

Market Snapshot:



Week Chg

Week %Chg

S&P 500 Index




Dow Jones Industrials




NASDAQ Composite




Value Line Arithmetic Index




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) Positive

Last week a reader emailed us asking about the “continuing failure” of our key indicators including MAAD, CPFL, and Cumulative Volume (CV) to underscore recent stock market price gains. The key word here is “failure.”

In the strictest sense, when an indicator “fails,” we presume the indicator is faulty. It doesn’t work well, is undependable and should be discarded. On the other hand, when an indicator “fails to confirm,” that is another matter. That latter description is the context within which we normally describe the actions of our indicators. These indicators are directional to the extent they move up when the market rallies and decline when the market falls. It is the EXTENT of the moves of the indicators that becomes the issue and which leads to “confirmation,” or not.

A case in point since the March 2009 lows is the movement of Weekly MAAD (see accompanying chart). The indicator made a low with the broad market and then rallied until the last week of April 2009. The S&P 500 peaked a week later. While the lead time by Weekly MAAD into that high was minimal, it is the action of the indicator since then that is important.

Market Overview – What We Know:

  • Major indexes made strong gains last week with S&P 500 hitting best level since week of January 4, 2008 and Dow 30 since week of November 9, 2007. NASDAQ Composite rallied to new all time high. Value Line index failed to make a new all-time high by inches.
  • All cycles including Short, Intermediate, and Major remain “Overbought.”
  • While Daily MAAD, CPFL, and CV confirmed short-term strength that resulted in new Intermediate highs in major indexes last week, none of indicators has yet overcome major resistance to confirm price strength.
  • To suggest Minor Cycle negative, S&P 500 must sell below lower edge of 10-Day Price Channel (1411.16 through Monday). Intermediate trend remains positive until lower edge of 10-Week Price Channel (1356.50 through September 21).
  • NYSE trading volume rose 33.2% last week as compared to previous truncated holiday week. Average Price per Share gained $1.96 to $62.47 and overcame high at $61.48 made March 15.
  • Weekly MAAD was positive with 17 issues higher and 3 negative. Weekly MAAD Ratio at 2.54 was toward “Overbought” levels. Daily MAAD rose above July 3 resistance high last Thursday, but remains well below March 20 high. Daily MAAD Ratio trending toward “Overbought” at 2.06.
  • CPFL on both Daily and Weekly cycles rallied last week above first resistance made back on April 9. Daily and Weekly CPFL Ratios were toward “Overbought” levels (2.34 and 2.54, respectively).
  • Cumulative Volume (CV) in both S&P 500 and S&P Emini rallied to new Intermediate highs last Thursday, but remain well below major resistance.

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