Stocks walk fine line between correction and bear market

Weekly Review: MAAD, CPFL indicator analysis

Daily S & P 500 Emini Futures contract with Cumulative Volume (CV)

cumulative, volume, emini

Weekly S & P 500 Emini Futures contract with Cumulative Volume (CV)

cumulative, volume, emini

Of the two possibilities, a pullback in a bull or the start of a new bear, we have found it increasingly difficult to accept the notion that a market with such weak underpinnings will go on definitely. That has been the case since the highs made in the spring of 2011. To underscore that skepticism, we refer again to our Most Actives Advance/Decline Line (MAAD) and especially the Daily series that made a slightly lower low last week below its June 4 plot bottom. What is significant about that action is that the indicator has been moving net lower for the past eight months. It peaked on March 20 and nearly two weeks before the broad market. It then declined until June 4 and made a low with most major indexes. But thereafter synchronicity failed. The S&P 500 rallied to a new high for the move on September 14 (1474.51), but Daily MAAD was nowhere in sight. In fact, the indicator rallied back less than 50% from its June lows relative to its March highs. Then came the September highs in the indexes, MAAD sank and made a new low.

Index Daily / Weekly / Monthly Stops Weekly Monthly
 

11/19

11/20

11/21

11/22

11/23

11/23

11/30

S&P 500 Index

BUY 1410.10

BUY 1405.20

BUY 1399.24

BUY 1390.43

BUY 1383.11

BUY 1459.02

SELL 1277.32

Dow Jones Industrials

BUY 13073.11

BUY 13031.05

BUY 12975.34

BUY 12890.89

BUY 12819.33

BUY 13562.15

SELL 12198.68

NASDAQ Composite

BUY 2970.42

BUY 2956.56

BUY 2942.71

BUY 2922.41

BUY 2905.85

BUY 3148.06

SELL 2738.24

Value Line Index

BUY 3035.84

BUY 3024.93

BUY 3011.91

BUY 2989.92

BUY 2971..09

BUY 3108.02

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.

What MAAD on both the Daily and Weekly series is suggesting is that Smart Money has been increasingly viewing market strength with skepticism. Weekly MAAD has also been failing on the upside. After peaking in late April 2011 that larger time series failed on two additional rallies to confirm S&P strength. Because we don’t want to hang our hat on just one indicator, it’s important to note that similar failures have been evident in our Call/Put Dollar Value Flow Line (CPFL), in Cumulative Volume (CV), and Momentum.

In sum, how the market develops over the next several weeks will largely determine whether market weakness during the past two months is merely a “normal” pullback within the context of a primary bull market that has not runs its upside course, or perhaps the beginning of a “new normal” with a bear’s tail tacked on it.

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