Stock market rallies, approaches near-term overbought condition

Weekly Review: MAAD, CPFL indicator analysis

If we are correct in our assumption that near-term buying since November 16 will prove to be nothing but a bounce in a larger Intermediate Cycle negative, then we would expect index pricing to begin to weaken anywhere from here on. Such strength would allow prices to recover 40% to 60% of losses since those September highs. Accompanying pricing, ratios would be reflecting readings in the “Neutral”-plus to “Overbought” range, a characteristic of ratios in a new bear trend. We would also look for prices to stay below the upper edges of 10-Week Price Channels (1456.37—S&P 500 through November 30).

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

daily, emini, sp, volume

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

weekly, emini, volume

For a resumption of intermediate-term weakness, we would then need to see selling back to and below those November 16 lows (1343.35—S&P 500). If there is weakness back to, but not below, those points, then a case for an Intermediate Cycle low could be made. Such market movement would become problematic, however, because the Major Cycle trend would have been left intact. In fact, the S&P could sell down to 1275 without suggesting an end to the long-term advance begun in March 2009, recent trend line breaks notwithstanding.

Index Daily / Weekly / Monthly Stops Weekly Monthly








S&P 500 Index

SELL 1364.20

SELL 1361.33

SELL 1362.46

SELL 1366.02

SELL 1370.46

BUY 1456.37

SELL 1277.32

Dow Jones Industrials

SELL 12660.35

SELL 12629.03

SELL 12626.01

SELL 12645.95

SELL 12676.05

BUY 13540.25

SELL 12198.68

NASDAQ Composite

SELL 2865.38

SELL 2863.38

SELL 2865.20

SELL 2872.11

SELL 2884.42

BUY 3126.60

SELL 2738.24

Value Line Index

SELL 2929.34

SELL 2920.87

SELL 2922.64

SELL 2929.26

SELL 2939.54

BUY 3101.06

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.

In sum, how the near-term rebound now under way develops will determine the staying power of the next larger Intermediate Cycle that will determine whether or not the bull market remains in effect. Damage over the past two months has been noticeable, but it has not been serious enough to reverse the advance underway for the past 3-½ years. Given indicator deterioration and the fact the market has made little net headway over the past 18 months, however, we wonder how much longer negative divergences will be able to persist.

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