Stock market rallies, approaches near-term overbought condition

Weekly Review: MAAD, CPFL indicator analysis

Bull shadow, stock chart Bull shadow, stock chart


Market Snapshot:


Week Chg

Week %Chg

S&P 500 Index




Dow Jones Industrials




NASDAQ Composite




Value Line Arithmetic Index




Minor Cycle (Short-term trend lasting days to a few weeks) Positive

Intermediate Cycle (Medium trend lasting weeks to several months) Negative / Neutral

Major Cycle (Long-term trend lasting several months to years) Positive / Neutral

Has a short-term low been hit? When the S&P 500 reached 1343.35 on November 16 via an intraday low, the short-term bottom was probably made. Since then the bellwether has rallied just under 5%. Has an intermediate-term low also been reached? Probably not. What about the Major Cycle advance that has been underway since March 2009? That trend remains intact, but selling since the middle of September has put stress the 3 ½-year-old bull.

That’s about the sum of it at the end of a low volume holiday week during which all of the major indexes rallied more than 3% while recovering a large chunk of recent losses. But there is an array of caveats. First, strength was powered by diminishing volume on Monday, Tuesday, and Wednesday. There was no trading on Thursday. And on Friday the market closed early. Given lingering short-term “Oversold” conditions that have persisted for several weeks, the market was simply ripe for a countertrend rally.

Market Overview – What We Know:

  • Major indexes posted strong gains last week with none advancing less than 3%. But strength was accompanied by low holiday volume during a truncated trading week.
  • While short-term trend has reversed back to positive, to suggest more positive flavor on larger Intermediate Cycle, S&P 500 would need to rally above upper edge of 10-Week Price Channel (1456.37 through November 30).
  • To re-assert Major Cycle uptrend, S&P must rally above September 14 intraday high at 1474.51.
  • Following slightly lower low on November 14 below June 4 bottom, Daily MAAD has rebounded over past several sessions, but Daily MAAD Ratio has already spiked upward and back into “Overbought” territory (last at 1.71).
  • While Weekly MAAD Ratio remains “Oversold” (last at .68), fact Daily MAAD Ratio has already moved into zone of vulnerability is cause for concern.
  • CPFL was positive by 3.99 to 1 last week with Weekly CPFL Ratio last plotted at .50 in “Oversold” territory.
  • On longer-term basis Cumulative Volume (CV) in both S&P 500 and S&P Emini has continued to under perform relative to S&P 500 pricing.

And, lacking other evidence, that’s the way we are going to treat strength since that November 16 low – as a “return action” rally within the context of a still negative larger Intermediate Cycle. While some of the more conventional measurements like stochastics and short-term Momentum have merely rallied back to “Neutral,” our Most Actives Advance/Decline Ratio has skyrocketed back into extremely “Overbought” territory (last at 1.71). While that MAAD reading is not necessarily a reason to rush for the exits, it is an indication that those “Oversold” conditions that persisted for weeks could be eliminated with just a few sessions of concerted buying. Such action is often a reflection of countertrend market movement in the early stages of a larger cycle decline. It is also true that our Daily Call/Put Dollar Value Ratio remains “Oversold” (last at .69) while both Weekly Ratios in MAAD and CPFL are toward “Oversold” territory. Hovering over all of the smaller cycle stats are long-term market measurements that remain “Overbought.”

Page 1 of 5 >>
comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome