Stock indexes spike higher on low volume

Market Overview – What We Know:

• Sharp gains Monday in face of deeply “Oversold” near-term conditions propelled major indexes upward from last Friday’s new short-term lows (1343.35—S&P 500). And market remains “Oversold,” despite Monday’s gains.
• But with Thanksgiving holiday looming, total market trading volume diminished nearly 19%.
• Minor Cycle remains negative until S&P rises above upper edge of 10-Day Price Channel (1405.20 through Tuesday).
• To reverse Intermediate Cycle to positive S&P 500 would need to rally above upper edge of 10-Week Price Channel (1459.02 through November 23). Major resistance and point to overcome to re-assert long-term uptrend in S&P 500 remains at 1474.51 created September 14.
• Daily MAAD posted 19 advances and one loss Monday and Daily MAAD Ratio remains “Oversold” (.89) while rising toward “Neutral.”
• Daily CPFL was positive Monday by 1.84 to 1 with Daily CPFL Ratio still deeply “Oversold” (.49).

Market Overview – What We Think:

• While major indexes posted sharp gains Monday, fact that strength developed in front of major holiday on diminishing volume makes rally somewhat suspect.
• In addition, none of major indexes was able to overcome upper edges of 10-Day Price Channels to suggest Minor Cycle reversal to positive.
• Nonetheless, it’s possible last Friday’s intraday low (1343.35) in S&P 500 could prove to be bottom of short-term decline begun after September 14 S&P high (1474.51). After some further backing and filling a small base could develop from which to launch some further rebounding.
• At this point, however, we suspect any strength that develops will prove to be of minor duration and will not cause the larger Intermediate Cycle to reverse to positive.
• If a short-term reversal to positive occurs, how Daily MAAD and near-term “Oversold” conditions respond will be key to longevity of rally. Given that, we suspect “Neutral” to “Overbought” conditions will develop quickly and that price movement will only retrace a portion of recent decline.
• How any short-term rally plays out within context of negative intermediate-term trend could determine staying power of Major Cycle trend which is challenged in terms of “Overbought” conditions and lack of solid indicator underpinnings.

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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About the Author

Robert McCurtain is a technical analyst/market timer, private investor and financial markets consultant based in New York City. He can be reached at traderbob@nyc.rr.com.

If you would like to read more about how the CPFL is constructed, read a Futures article on the concept. This link will take you to the MAAD article. A two-part series about system development with the MAAD also is available.