Stocks fade, Nasdaq Composite hits minor support

Stock index, chart, technical analysis

Market Overview – What We Know:

• Major indexes headed south Tuesday with serious selling developing in NASDAQ Composite and Value Line indexes.
• NASDAQ Composite has now erased all of gains since late August while also breaking below minor support (3080.28). Index is on verge of threatening Intermediate Cycle uptrend in effect since June 4.
• S&P 500 is close to penetrating lower edge of 10-Day Price Channel (1439.85 through Wednesday) to near-term reversal to negative.
• NYSE trading volume rose 32% Tuesday compared to Monday’s levels and Average Price per Share declined 14 cents to $62.00.
• 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 Tuesday with 3 issues higher and 17 lower. Indicator is currently positioned to penetrate shallow uptrend in effect since June low. Daily MAAD Ratio remains “Neutral” to slightly “Oversold” (.88).
• Daily CPFL was negative by 1.7 to 1 Tuesday with Daily CPFL Ratio also “Neutral” to “Oversold” (.85). 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:

• Tuesday’s sharp selling in NASDAQ Composite index may have paved way for reversal of Minor Cycle to negative in all of other major indexes. Both S&P 500 and Dow 30 are also on verge of short-term reversals relative to lower edges of 10-Day Price Channels.
• If such follow through selling develops, it could make case for optimism on intermediate uptrend in effect since June much more difficult since something more negative could be lurking on horizon.
• Nothing but strength in S&P back above September 14 intraday high (1474.51) would re-assert intermediate-term advance begun at June 4 low (1266.74).
• 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 while suggesting new Intermediate Cycle negative trend.
• Indicators such as Daily Most Actives Advance/Decline Line (MAAD) continue to suggest market has gotten ahead of itself.
• 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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