Intermediate stock market cycle comes into play on losses

Stock index, chart, technical analysis

Market Overview – What We Know:

• Follow-on selling in major indexes Wednesday not only brought Dow Jones Industrial Average into line with other indexes below lower edge of 10-Day Price Channel, but short-term negativity gained greater toehold.
• NYSE trading volume declined by 2.5% and Average Price per share was down 21 cents to $60.98.
• Intermediate and Major cycles remain positive, but “Overbought.”
• To suggest Minor Cycle positive, S&P 500 would need to rally first above upper edge of 10-Day Price Channel (1460.02 through Thursday) with follow-through buying above September 14 intraday high (1474.51). Strength above latter level would re-assert Intermediate Cycle uptrend that remains positive until lower edge of 10-Week Price Channel (1366.48 through September 28).
• Daily MAAD was negative Wednesday with 6 issues higher and 14 lower. Daily MAAD Ratio was below “Neutral” at .87 toward upper edge of “Oversold” territory.
• Daily CPFL was negative by 1.15 to 1. Daily CPFL Ratio remains “Overbought” at 2.32.

Market Overview – What We Think:

• If Tuesday’s sharp selling was the confirmation of a negative reversal of the short-term advance that began after September 6 upside break, issue then becomes staying power of larger Intermediate Cycle begun after June 4 lows (1266.74—S&P 500), a trend that has increasingly lacked indicator confirmation on upside.
• In face of “Overbought” Intermediate Cycle, burden of proof now rests with bulls. Given fact that intermediate trend remains positive, extent to which short-term trend weakens will determine whether or not Intermediate Cycle remains viable.
• Fact none of our key indicators is anywhere near making new highs is additional evidence of change in character of this market over past few months and on longer term since spring of 2011.
• In background it’s important to keep in mind fact market is entering time of year that has proven to be historically vulnerable on occasion -- 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.