Stocks walk fine line between correction and bear market

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

1359.88

-19.97

-1.44%

Dow Jones Industrials

12588.31

-227.08

-1.77%

NASDAQ Composite

2853.13

-51.74

-1.78%

Value Line Arithmetic Index

2911.94

-60.07

-2.02%

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

Over the past several weeks and since the mid-September to early October short to intermediate-term highs, the average losses of the four major indexes we follow on a high to low and close to close average basis ranged from 8.2% for the Dow Jones Industrial Average, 8.3% for the S&P 500, 9.0% for the Value Line index, and 11.4% for the NASDAQ Composite.

Those with a more bullish bias on the market suggest those losses are within the tolerances of a “normal” correction within the context of the Major Cycle uptrend begun in March 2009. Those who are more bearish say, “No, the losses in the NASDAQ alone indicate a new bear market has begun.”

Market Overview – What We Know:

  • Major indexes were in loss column again last week, but momentum of selling wasn’t as intense and some rebounding came at end of week.
  • Through last Friday and since recent highs, NASDAQ lost 11.4% (average of high to low and close to close losses), Value Line index was down 9.0%, S&P 500 8.3%, and Dow Jones 30 8.2%.
  • To suggest more positive flavor on Intermediate Cycle, S&P 500 would need to rally above upper edge of 10-Week Price Channel (1459.02).
  • To re-assert Major Cycle uptrend, S&P must rally above September 14 intraday high at 1474.51.
  • MAAD on both Daily and Weekly cycles continues to underscore negative divergences. Daily MAAD eked out new short to intermediate-term low last Wednesday by sinking slightly below its June 4 support low. Indicator has effectively erased all of gain since June. Daily MAAD Ratio was “Oversold” at .81 while Weekly MAAD Ratio was “Oversold” at .67.
  • CPFL was negative last week by 3.18 to 1. Daily CPFL Ratio was last “Oversold” at .44 with Weekly CPFL Ratio “Oversold” at .60.
  • Daily Cumulative Volume in S&P 500 has kept in synch with index, but Daily CV in S&P 500 Emini remains noticeably negative while reflecting S&P price equivalent of about 1300.

We have always had difficulty subjectively determining what is “normal” in the stock market. To suggest that the adjective can describe most stock market behavior would fly in the face of historical evidence that relies on abnormalities to determine true buying or selling opportunities. One of the historical norms indicates that a pullback of 10% in a bull trend is “Normal.” If there is a decline of merely 8%, as is the case with the S&P 500 currently, does that mean more selling is inevitable? What if the market declines 15%? Is that the signal for a new bear trend? And so on…. All of this reminds us of the story about the small boy who wanted to know, when looking at two mountains with his father, if he “would die more falling off of the big mountain than falling off of the smaller one?” Such is the role of fathers and perhaps of analysts, too.

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