S&P 500, teetering, fails at September resistance

Weekly Review: MAAD, CPFL indicator analysis

Stock index, chart, technical analysis Stock index, chart, technical analysis

Market Snapshot:



Week Chg

Week %Chg

S&P 500 Index




Dow Jones Industrials




NASDAQ Composite




Value Line Arithmetic Index




Minor Cycle (Short-term trend lasting days to a few weeks) Negative

Intermediate Cycle (Medium trend lasting weeks to several months) Neutral / Negative

Major Cycle (Long-term trend lasting several months to years) Positive

“Nope” is the operative word best describing price action in the stock market last week. After peaking back on September 14 (1474.51), the S&P 500 failed on two subsequent attempts on October 5 (1470.96) and October 18 (1464.02) to surmount the earlier level. In addition, the S&P faded back to the uptrend line (near 1430) stretching back to the June low (1266.74), but there has yet to be a decisive downside break of that line. “Nope” prevails and the larger Intermediate Cycle remains intact, for the moment.

Although first impressions on the dating scene and in stock market price action are important, they are not completely revealing. That’s what we think may be the case with recent index pricing and indicator status. Apparent “Oversold” conditions on the Minor Cycle have surfaced in our Daily Most Active Advance/Decline Line (MAAD) and Call/Put Dollar Value Flow Line (CPFL), but in the first stages of a larger decline, “Oversold” is less a measurement of market opportunity than it is a reflection of market negativity.

Market Overview – What We Know:

  • Despite sharp losses last Friday, only the NASDAQ Composite index was net loser last week, down 1.26% over five sessions.
  • But while the S&P 500 and Dow Jones Industrial Average were ahead fractionally on the week, both indexes are on the verge of sinking below uptrend lines in effect since June while threatening the lower edges of 10-Week Price Channels (1405.79—S&P 500 and 13110.81—Dow 30). Selling below Weekly Price Channels would almost certainly signal an end to 4 1/2-montjh-old uptrend.
  • If downside action dissipates, S&P 500 would need to rally above September 14 intraday high (1474.51) to suggest resumption of Intermediate Cycle advance.
  • Last Friday Daily MAAD declined back below defined uptrend line in effect since June lows. Given overall weakness of indicator since June, it wouldn’t take much to force indicator below June bottom.
  • Weekly MAAD was even last week with 10 issues positive and 10 negative. Weekly MAAD Ratio was toward “Oversold” at .89.
  • Weekly CPFL was negative last week and the CPFL Weekly Ratio favored bears by 5.4 to 1 on a Dollar Value basis. Indicator is nowhere near major resistance made week of February 25, 2011.
  • Cumulative Volume (CV), especially in S&P Emini, continues to reflect a broad lack of enthusiasm, especially since late August/early September.

Market Overview – What We Think:

  • While short-term “Oversold” conditions have been surfacing as result of net market negativity over past month, it’s important to remember “Oversold” in early stages of new decline may be merely reflection of new “negativity” and not of buying opportunity.
  • Nonetheless, until index pricing breaks below defined uptrends (1430—S&P 500) in effect since June lows and lower edges of 10-Week Price Channels (1405.79—S&P 500), we cannot preclude another near-term bounce within context of still positive Intermediate Cycle positive. But to confirm resumption of Intermediate Cycle uptrend, S&P 500 must rally 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, the lack of which we continue to suspect has been revealing a lot about internal strength of market on long term cycle.
  • Indicators such as MAAD continue to suggest Smart Money has only been buying somewhat more than it has been selling since June, even though index pricing has made new highs for move initiated in March 2009. Smart Money tone is not bullish.
  • In background it’s important to keep in mind fact market is operating at time of year that has proven to be historically vulnerable -- think 1929, 1987, and 2007.

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