Market Overview – What We Think:
- While short-term “Oversold” conditions have been surfacing as result of three weeks of net market negativity, it’s important to remember “Oversold” in early stages of new decline on larger cycles may be merely reflection of new “negativity” and not of buying opportunity.
- Nonetheless, until index pricing breaks below defined uptrends (1422—S&P 500) in effect since June lows and lower edges of 10-Week Price Channels (1392.40—S&P 500), we cannot preclude yet another near-term bounce within context of still positive Intermediate Cycle positive.
- To confirm resumption of Intermediate Cycle uptrend, S&P 500 would have to rise above September 14 intraday high (1474.51) and stay there.
- What would likely be lacking, however, as has been the case since spring 2011 highs would be indicator confirmation that we continue to suspect has been revealing a lot about market strength for months. And the likely eventual direction of market price action….
- Indicators such as MAAD continue to suggest Smart Money has only been buying a bit more than it has been selling since June lows, even though index pricing has made new highs for move initiated in March 2009. That tone is not bullish.
- 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.
In addition, none of our key indicators has been able to overcome the resistance highs made in early to mid-2011, and even though index pricing went on to its best levels since the bull move began in March 2009. At least until September 14 when the S&P 500 peaked (1474.51).
From the high in May 2011 (1370.58) until that September 14 peak, the S&P 500 rallied nearly 7.6%. Over the past three weeks that 17 month gain has been shaved to 4.2%, not including any commissions or fees incurred by an investor. Put another way, an investor buying the S&P in May 2011 has barely made ¼ of a percentage point per month over the past 17 months. And that was after our key indicators reached their turning point, or “climax,” in a drama preceded by a 106% gain in the S&P 500 from March 2009 over two years until May 2011. Since then, our indicators have continued to signal increasing risk for longs.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)