Market Overview – What We Think:
- Hesitation in vicinity of lower edges of 10-Week Price Channels last week with short-term “Oversold” conditions prevailing could result in some near-term rebounding in sessions just ahead.
- But its 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.
Underscoring our suspicion the nature of the market may be changing again due to a shift in the supply/demand balance, we have continued to note the evolution of activity in our Most Actives Advance/Decline Line (MAAD). Except for one divergence in April 2010 MAAD was in synch with the S&P upward from the March 2009 low (666.79) through May 2011 (1370.58). Strength during that time frame resulted in a 106% gain in the S&P and included a pullback of nearly three months from April through early July 2010.
After that May 2011 high, things began to change in MAAD. Thereafter the indicator did not make new highs with the S&P into April 2012 and again into September 2012. An investor buying at the spring 2011 high only made 7.5% if he held until September 14, 2012. If he bought at the intermediate-term lows in October 2011 and held until September 2012, he made 37%. Both gains were minimized by profits made from March 2009 through May 2011.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)