S&P more positive near-term, but upside obstacles loom

Stock index, chart, technical analysis

Market Overview – What We Know:

• Marginal gains were posted by major indexes Wednesday.
• NYSE trading volume rose 7%, but Average Price per Share lost 23 cents to $62.16.
• S&P 500 strength has carried bids in bellwether back above upper edge of 10-Day Price Channel (1456.09) to suggest more positive flavor on Minor Cycle. But that strength was only confirmed by Value Line index above coincident level and not by Dow Jones Industrials or NASDAQ Composite index.
• Intermediate Cycle remains positive and S&P 500 must sink below lower edge of 10-Week Price Channel (1392.40 through October 19) to indicate negative reversal.
• Daily MAAD was modestly positive Wednesday with 13 issues higher, 6 lower, and 1 unchanged. Indicator was last back above rising uptrend line of shallow MAAD advance in effect since June low. Daily MAAD Ratio was last toward “Oversold” territory (.82).
• Daily CPFL was positive Wednesday by 2.35 to 1 with Daily CPFL Ratio still toward “Oversold” (.73).

Market Overview – What We Think:

• S&P 500 strength over past few sessions has given short-term trend, within context of still positive Intermediate Cycle, a more positive tone. But index faces three near-term obstacles that must be overcome. First it must rise above short-term downtrend line near 1468.00, then resistance high (1470.96) made October 5, and then September 14 intermediate high (1474.51).
• Any failure short of September 14 peak could mean that strength since October 11 S&P 500 intraday low (1425.53) is mere “return action” in face of developing Intermediate Cycle high. Upside failure in current environment would mean Intermediate Cycle rally underway since early June may have seen its best levels.
• To prove bearish point on downside, however, S&P 500 must sell below rising uptrend line (last near 1430) with follow through weakness below lower edge of 10-Week Price Channel (1392.40 through 10-19). Selling below latter point would likely terminate four-month-old-plus rally while suggesting new Intermediate Cycle negative.

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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