Market enters second week of lateral price action

Stock index, chart, technical analysis

Market Overview – What We Know:

• Fractional losses characterized trading in major indexes Monday.
• All cycles including Short, Intermediate, and Major remain positive, but “Overbought” with exception of MAAD Daily Ratio that was last moderately “Overbought” at 1.25.
• NYSE trading volume sank nearly 65% Monday compared to last Friday’s higher than normal activity. Average Price per Share declined 53 cents to $61.50.
• To suggest Minor Cycle negative, S&P 500 must sell below lower edge of 10-Day Price Channel (1443.09 through Tuesday). Intermediate trend remains positive until lower edge of 10-Week Price Channel (1366.48 through September 28).
• Daily MAAD was negative Monday with 3 issues higher and 17 lower. Daily MAAD moved above July 3 resistance high on September 13, but remains well below March 20 high.
• Daily CPFL rallied to new short-term high Monday with net positive of 2.23 to 1.
• Cumulative Volume (CV) in both S&P 500 and S&P Emini rallied to new Intermediate highs September 13, but remain well below major resistance.

Market Overview – What We Think:

• S&P 500 is rapidly closing in on lower edge of 10-Day Price Channel (1443.09 through Tuesday) to suggest downside break of that level would terminate uptrend in effect since September 6.
• More concerted selling on Minor Cycle could also put in jeopardy Intermediate Cycle underway since June 4, a trend that has increasingly lacked indicator confirmation on upside. We would need to see S&P 500 above September 14 intraday at 1474.51 to suggest resumption of Intermediate Cycle advance.
• In face of “Overbought” short and intermediate trends, burden of proof now rests with bulls. It remains to be seen if market is simply hesitating prior to another upward thrust on Minor Cycle, or if some other market dynamic is about to unfold.
• Big difference between current pricing and recent run-up following upside break on September 8 is that market is not “Oversold” now as it was then.
• Fact none of our key indicators is anywhere near making new cumulative highs, even though CPFL has demonstrated some renewed life over the past few weeks, is additional evidence that character of this market has changed remarkably since May 2011.
• 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.