Stock market short-term trend oversold, shaky intermediate cycle

Weekly Review: MAAD, CPFL indicator analysis

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

 

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1414.20

+2.26

+.16%

Dow Jones Industrials

13093.16

-14.04

-.10%

NASDAQ Composite

2982.13

-5.82

-.19%

Value Line Arithmetic Index

3038.16

+30.13

+1.00%

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

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

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

There comes a time when all cycles, including intraday, daily, weekly, and monthly, come to an end. If the previous Intermediate Cycle, for example, was positive, the trading strategy needs to reflect a more negative outlook relative to the direction of the dominant cycle. Same goes for the major trend. If all intermediate lows were previously followed by buying to new highs on the long-term, the time will come when the reverse will be true and Intermediate Cycle highs will be an opportunity for aggressive selling. We think we have entered one of those periods when buying and selling strategies will need to be modified.

While it may be a bit too early to suggest the major uptrend initiated in March 2009 is over, the odds are increasing that the intermediate advance that began after the June 4 lows (1266.74—S&P 500) is over and that the September 14 short-term high (1474.51—S&P 500) could prove to be the best level the market will see for some time.

Market Overview – What We Know:

  • In truncated trading week, S&P 500, Dow Jones Industrial Average, and NASDAQ Composite were little changed after three trading sessions. Value Line index was up 1% and 30.13 points on week.
  • Because of shortened week, NYSE trading volume declined 28%, but Average Price per Share rose 60 cents to $60.65.
  • S&P continued to tease lower edge of 10-Week Price Channel enough to suggest trend since June is likely over. To indicate more positive Intermediate Cycle outlook, S&P would now have to rise above upper edge of 10-Week Price Channel (1451.21). But nothing but strength back above September 14 intraday high in S&P 500 (1474.51) would indicate resumption of Major Cycle uptrend.
  • Daily MAAD declined back toward recent short-term low last week and was last plotted at level equivalent to S&P 500 price of 1350 even though index remains more than 65 points higher. Daily MAAD Ratio was “Oversold” at .66.
  • Weekly MAAD was positive last week with 15 issues higher and 5 lower. Weekly MAAD Ratio was near “Neutral” at .97.
  • Weekly CPFL was negative last week by 1.24 to 1 with CPFL Weekly Ratio near “Neutral” at .99
  • Cumulative Volume (CV), especially in S&P Emini, continues to reflect broad lack of enthusiasm.

Although the 4 ½-month-old rally in the S&P carried prices through the summer and resulted in a 16% gain, we suspect market bias will require that a tuned trading strategy soon changes from buying on strength during each short-term pullback, to selling on strength. In fact, following the creation of the September 14 high in the S&P, prices in the bellwether failed on two subsequent attempts (October 5 and 18) to better than level. Last Friday’s failure to hold the day’s gains could prove to be the third attempt, but in the face of near-term “Oversold” conditions, we would need to see the S&P sink below its October 26 intraday low (1403.28) to confirm that suspicion and to also solidify what could be a new Intermediate Cycle negative.

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