Market Overview – What We Think:
- Renewed selling last week in major indexes underscores our belief mid-September prices highs (1454.71—S&P 500) should prove to be peak of Intermediate Cycle advance begun after June lows (1266.74—S&P 500).
- While short-term “Oversold” conditions have been surfacing as result of recent market negativity, it’s important to remember “Oversold” in early stages of new decline may be merely reflection of new “negativity” and unfavorable market momentum and not of a buying opportunity.
- When short-term bounce does develop, what will likely be lacking, however, as has been case since spring 2011 highs, would be indicator confirmation on upside, 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 for weeks, if not months, even though index pricing has made new highs for move initiated in March 2009. Smart Money tone is not bullish.
There is also a larger issue that could play out in the weeks just ahead. If it turns out there is more selling to come on the Intermediate Cycle, “Oversold” conditions would develop. Then the status of the Major Cycle would determine whether or not Intermediate Cycle “Oversold” condition is truly “Oversold” or merely the tip of a long-term reversal to negative, a change that would reverse the uptrend in effect since March 2009.
Since the early 2009 lows there have been three Intermediate Cycle lows with three coincident intermediate “Oversold” conditions. Those lows occurred in July 2010, October 2011, and June 2012. Each was followed by a new round of buying and resulted in new highs for the move until the most recent short to intermediate-term high on September 14 when the S&P 500 peaked at 1454.71.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)