Market at new near-term high, fades in face of overbought

Market Overview – What We Know:

• Despite intraday strength to new short-term highs (1416.34--S&P 500), major indexes faded into close Monday to record net losses.
• Market volume compared to Friday’s levels was lower by just under 3%.
• S&P 500 would need to sell below lower edge of 10-Day Price Channel (1380.87 through Tuesday) to suggest reversal of near-term trend to negative.
• Intermediate cycle remains positive until S&P 500 rallies above upper edge of 10-Week Price Channel (1453.21 through December 7).
• Daily MAAD was negative Monday by 5 to 14 and Daily MAAD Ratio remained “Overbought” at 2.08, toward the highest short-term levels in months.
• Daily CPFL was positive Monday by 1.18 to 1. Daily CPFL Ratio was moderately “Overbought” at 1.33.
• Cumulative Volume in both S&P 500 and S&P Emini continue to under perform S&P pricing.

Market Overview – What We Think:

• While short-term trend remains positive, continuing low volume as reflected in Cumulative Volume numbers and elimination of recently “Oversold” short-term stats could soon result in near-term top.
• We suspect short-term strength will not cause larger Intermediate Cycle to reverse to positive with gains above upper edge of 10-Week Price Channel (1456.37—S&P 500).
• “Neutral” to “Overbought” conditions within context of Intermediate Cycle negative would be suggestive of Minor Cycle high.
• Ultimately, extent to which September/October highs (1474.51—S&P 500) might be seriously challenged could determine whether or not current strength is merely brief upside feint in Intermediate Cycle negative, or something more positive.
• How current price action plays out relative to September highs will determine status of Major Cycle uptrend in effect since March 2009.

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.