Market Overview – What We Think:
- Slightly higher high in Dow 30 last week on Intermediate Cycle notwithstanding, it remains to be seen whether or not market action over past few weeks will prove to be yet another corrective phase prior to new highs in Intermediate Cycle advance initiated after June lows, or something more negative.
- To resolve issue on positive side of ledger, S&P 500 must rally above September 14 intraday high (1474.51) to re-assert intermediate-term advance begun after June 4 low (1266.74).
- Without indicator confirmation, issue remains same as it has since late March/early April highs when MAAD and CPFL peaked. Intermediate Cycle Momentum peaked mid-February.
- On downside, S&P 500 must sell below rising uptrend line (last near 1420) with follow through weakness below lower edge of 10-Week Price Channel (1381.36 through 10-12). Weakness below latter point would almost certainly terminate four-month-old rally.
- Indicators such as Daily Most Actives Advance/Decline Line (MAAD) continue to suggest market has gotten ahead of itself. Daily MAAD has come nowhere near overcoming March 20 resistance high even though indicator participated, albeit feebly, on upside after June lows.
- MAAD failure suggests Smart Money has only been buying a bit more than it has been selling over past few months, even though index pricing has made new highs for move initiated in March 2009.
- 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.
What this market reminds us a lot of is the famous California Gold Rush of 1848-49. During the first phase of that Wild West phenomenon, many of the 7,000 miners arriving early quickly made fortunes on the banks of the American River. Some became millionaires in a few days by simply picking up loose nuggets. One group of seven miners collected 270 pounds of gold in a month, a hoard worth about $8 million in 1848. In today’s dollars that gold would be worth about $160 million. Not bad for pick and shovel work. But then came 1849. By then the word of quick fortunes had spread, the 7,000 gold miners had swelled to over 50,000, as gold pickings had substantially diminished. Grabbing 270 pounds of gold in a month was, in 1849, mostly a pipe dream.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)