Stocks walk fine line between correction and bear market

Market Overview – What We Think:

• Market may be gearing up for some near-term rebounding in sessions just ahead. Since short-term “Oversold” conditions cannot persist indefinitely, fact major indexes have moved back into zones of support while closing in on uptrend lines of some importance would result in some bargain-hunting, near-term.
• If rally does develop, extent to which September/October highs (1474.51—S&P 500) are seriously challenged will determine whether or not near-term rally is merely a brief upside feint in Intermediate Cycle negative, or if it will turn into full-fledged intermediate reversal to positive.
• How price movement plays out will determine status of Major Cycle uptrend in effect since March 2009.
• In face of ongoing indicator deterioration, such as in our Daily MAAD series that has erased all of its gain since June lows, we can only wonder how this market can shake off so much internal negativity to make new highs for the move begun in march 2009. If it does, yet another negative divergence would likely develop.

But there comes a time when “Oversold” conditions, even Momentum, begin to “bite” in a new negative trend and at least a short-term rebound can develop. The point at which that rally can begins often coincides with support zones, trend lines, or psychological points at which the market has merely exhausts itself on the downside. We think the short-term trend could be close to one of those junctures.

Daily S & P 500 with Cumulative Volume (CV)

Weekly S & P 500 with Cumulative Volume (CV)

But even if the market experiences a healthy bounce from current levels, nothing but strength back above those September/October highs would re-assert the Major Cycle advance begun in March 2009. Is that possible? Please refer back to what’s “normal.” On the other hand, if a short-term rally becomes labored, does not overcome recent highs, and forces statistics back toward “Neutral” to moderately :”Overbought” levels very quickly, then the burden of proof becomes increasingly difficult for the bullish investor looking for a continuation of the uptrend.