Stock market intermediate cycle in doubt

Stock index, chart, technical analysis

Market Overview – What We Know:

• Major indexes sustained small losses Monday. S&P 500 and Dow Jones Industrials remain positive on Minor Cycle, but NASDAQ Composite and Value Line index do not.
• To suggest reversal to negative on near-term trend, S&P 500 would need to sell below lower edge of 10-Day Price Channel (1440.22 through Tuesday).
• NYSE trading volume was sharply lower Monday by 23% while Average Price per Share added 3 cents to $62.14.
• Intermediate Cycle remains positive on all cycles and S&P 500 would have to sink below lower edge of 10-Week Price Channel (1381.86 through October 12) to suggest negative reversal.
• Daily MAAD was negative Monday with 4 issues higher and 16 lower. Indicator continues to reflect negative tone after failing to confirm S&P 500 strength after September 6. Daily MAAD Ratio remains “Neutral” to slightly “Oversold” (.88).
• Daily CPFL was sharply negative by 4.2 to 1 Monday with Daily CPFL Ratio also “Neutral” to “Oversold” (.79). Indicator is nowhere near major resistance made week of February 25, 2011.
• Cumulative Volume (CV) in both S&P 500 and S&P Emini remains weaker than index pricing on both Daily and Weekly trends.

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.
• 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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