S&P recoups 50% of losses since September, but overbought in near term

Weekly Review: MAAD, CPFL indicator analysis

From the bearish point-of-view, there is one thing that noticeably militates against substantially more buying in the sessions just ahead – low volume. Not only did overall market activity diminish just before and into the Thanksgiving holiday, but it has yet to fully recover to more normal levels. And given the fact the market is just a few weeks away from the Christmas and New Year’s holidays, it’s a good bet market activity will be challenged into the end of the year. Since it takes serious volume to drive prices higher in a bull trend, we wonder how bids can be sustained on the upside if volume remains below par and the Intermediate Cycle remains negative. Simply put, nothing but a reversal of the intermediate trend to positive would suffice to underscore the bullish cause.

We have pointed out how, since the spring of 2011, none of our key indicators has confirmed any of the market’s strength. MAAD, CPFL, Momentum, and Cumulative Volume have all failed to better their 2011 indicator highs. During that period the S&P rallied nearly 7.6% from 1370.58, the intraday high reached May 2, 2011, to 1474.51, the intraday high hit September 14, 2012. During the September/November decline virtually all of that advance was erased. The recent short-term rally recouped some of the loss, but net, the S&P was last up only 3.3% after nearly 19 months. Question is, is the risk worth the exposure?

In sum, from a bullish perspective, because the market remains above a long-term trend line stretching back to March 2009, because some Intermediate Cycle stats are apparently “Oversold,” and because the market has recovered more than 50% of recent losses, there is reason to think weakness since the September highs could prove to be another buying opportunity in the ongoing bull market now approaching its fourth anniversary. On the other hand, a bear might argue the lack of confirmation in the advance over the past 19 months is an indication weaker and weaker hands have been fueling higher prices.

Whichever, philosophy wins the argument in the real market, it’s a good bet that how this current short-term trend plays ought will likely have a significant impact on not only the still negative Intermediate Cycle, but also the long-term trend that hangs in the balance.

Market Overview – What We Know:

  • Major indexes posted small gains in bluer chip indexes with more modest strength in secondary issues last week.
  • Market volume increased over previous week’s activity by 66%, but that is because Thanksgiving week trading only consisted of 3 ½ sessions. Market is on verge of entering another lower volume holiday gauntlet.
  • To suggest more negative market tone on Minor Cycle, S&P 500 must sell below lower edge of 10-Day Price Channel (1375.46 through Monday). To suggest reversal of Intermediate Cycle negative to positive, S&P 500 must rally above upper edge of 10-Week Price Channel (1453.21 through December 7).
  • Strength above September 14 S&P 500 intraday high at 1474.51 would be required to re-assert Major Cycle uptrend.
  • Daily MAAD has rebounded nicely since short-term low made November 14, but indicator has yet to overcome September 14 resistance high, let alone March 20 resistance. At same time, Daily MAAD Ratio has moved back to “Overbought” level (2.61) not seen for months. Weekly MAAD Ratio remains somewhat more optimistic in nearly “Oversold” territory (.80).
  • CPFL was positive by 2.54 to 1 last week with Weekly CPFL Ratio “Oversold” at .50.
  • 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, especially since November 16 short-term low. 

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