Stock market oversold condition may be fool's gold for traders

MAAD, CPFL indicator review

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

 

Market Snapshot for session ending 11-12-12
 

Last

Day Change

%Change

S&P 500 Index

1380.03

+.18

+.01%

Dow Jones Industrials

12815.16

-.22

-.00%

NASDAQ Composite

2904.25

-.61

-.02%

Value Line Arithmetic Index

2970.82

-1.19

-.04%

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

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

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

Market Overview – What We Know:

  • Major indexes closed within range of even Monday.
  • Trading volume on NYSE declined and Average Price per Share lost 12 cents to $59.29.
  • Minor Cycle remains negative until S&P rises above upper edge of 10-Day Price Channel (1426.02 through Tuesday).
  • S&P pricing remains below long-term uptrend line (last near 1385) stretching back to October 4, 2011. At same time, S&P continues to threaten trailing 200-Day Moving Average (last near 1365).
  • To reverse Intermediate Cycle to positive S&P 500 would need to rally above upper edge of 10-Week Price Channel (1455.44 through November 16).
  • Major resistance and point to overcome to re-assert long-term uptrend in S&P 500 remains at 1474.51 created on September 14.
  • Daily MAAD was marginally positive Monday with 13 issues positive and 7 negative. Indicator remains within range of early June low. Daily MAAD Ratio remains “Oversold” (.84).
  • Daily CPFL was negative by 6.43 to 1 Monday with Daily CPFL Ratio toward “Oversold” (.83).

Market Overview – What We Think:

  • Market internals on Minor Cycle apparently remain “Oversold.” But problem is that if market does not rally as “Oversold” conditions correct back toward “Neutral,” pricing could be setting up for another downdraft within context of new Intermediate Cycle negative.
  • More selling in face of apparently “Oversold” readings simply underscores historical evidence that “Oversold” early in larger cycle decline (intermediate in this case) may not be all it seems.
  • More weakness would merely amplify developing negative influence of Intermediate Cycle, but that still remains moderately “Overbought.”
  • We could see some rebounding in the sessions just ahead on the Minor Cycle, but given increasing negative influence of intermediate trend, that is only a 50/50 bet.
  • September 14 intraday highs (1454.71—S&P 500) should not be seriously challenged for foreseeable future.
  • How new intermediate-term negative plays out could determine staying power of Major Cycle trend which is challenged in terms of “Overbought” conditions and lack of solid indicator underpinnings.

cumulative, volume, sp

emini, cumulative, volume

Index Daily / Weekly / Monthly Stops Weekly Monthly
 

11/12

11/13

11/14

11/15

11/16

11/16

11/30

S&P 500 Index

BUY 1425.15

BUY 1426.02

BUY 1426.39

BUY 1421.98

BUY 1416.37

BUY 1455.44

SELL 1277.32

Dow Jones Industrials

BUY 13221.73

BUY 13226.90

BUY 13225.35

BUY 13181.24

BUY 13127.39

BUY 13537.24

SELL 12198.68

NASDAQ Composite

BUY 3012.17

BUY 3013.64

BUY 3007.39

BUY 2996.81

BUY 2983.88

BUY 3151.29

SELL 2738.24

Value Line Index

BUY 3045.07

BUY 3054.52

BUY 3062.10

BUY 3056.69

BUY 3047.34

BUY 3101.01

SELL 2734.45

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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