Overbought market remains range bound near-term

Stock index, chart, technical analysis

Market Snapshot for session ending 09-20-12

Market Overview – What We Know:

• Small gains were posted by major indexes Wednesday.
• All trends including short, intermediate, and major remain positive, but “Overbought.”
• NYSE trading volume rose a little under 2% Wednesday and Average Price per Share sank 28 cents to $61.87.
• Minor Cycle negative would be suggested if S&P 500 sinks below lower edge of 10-Day Price Channel (1423.33 through Thursday). Intermediate trend remains positive until lower edge of 10-Week Price Channel (1356.50 through September 21).
• Daily MAAD was higher Wednesday with 14 issues positive and six negative. Indicator remains below interim peak made last Friday and is still holding above July 3 high, but remains well below March 20 peak, despite higher S&P prices. Daily MAAD Ratio was last toward “Overbought” territory (1.83).
• Daily CPFL was positive Wednesday by 1.50 to 1 and reached another new short to intermediate-term high on Cumulative basis. Daily CPFL Ratio was “Overbought” at 2.76.

Market Overview – What We Think:

• Continued “backing and filling” price action in S&P 500 leaves us with an uneasy feeling about viability of lingering positive in short-term trend.
• Over past five sessions S&P 500 has been tracing out potential intraday Head and Shoulders pattern via more sophisticated Trade Volume bar chart with downside measured move implications. Wednesday’s feeble rally may have completed “Right Shoulder” of pattern and overnight selling Wednesday evening below potential “Neckline” at 1456 could mean possible downside follow-through toward 1437 in S&P Emini. That level just happens to correspond with zone of interim support and, depending on time it might take prices to get there, could coincide with lower edge of 10-Day Price Channel in Emini (1421.27 through Thursday).
• All of this is in wake of attainment of short-term measured move target via small bull “flag” last week. Short-term “Overbought” conditions could make any further gains from current levels difficult.
• While strength last week with coincident gains by MAAD, CPFL, and CV to new short-term highs bolstered Minor and Intermediate Cycles, fact that all of our key indicators continue to hold well below early 2011 highs does nothing for positive flavor of long-term trend.
• In background it’s important to keep in mind fact market is entering time of year that has proven to be historically vulnerable -- think 1929, 1987, and 2007.

Note: Stop levels, a function of the extant trend, are based on the trailing moving average price channels for the Highs or the Lows of an index. Whether or not a specific index is suggesting a “Buy” or Sell” is determined by whether or not index prices are above or below the current channel Stop levels. Stop levels should only be used as an entry or exit guide and in conjunction with other market entry and exit strategies.

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