Market may still offer near-term upside potential

Stock index, chart, technical analysis

Market Overview – What We Know:

• Marginal gains were evident in major indexes Thursday, but market volume shrank by just over 10%.
• Short-term trend remains positive with a slightly neutral bias. S&P 500 would need to sell below lower edge of 10-Day Price Channel (1395.42) to signal possible 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 positive by 1.85 to 1 Thursday with 13 issues higher and 7 lower, as indicator remains somewhat more bullish than S&P pricing. Daily MAAD Ratio was last “Overbought” at 1.79.
• Daily CPFL was negative Wednesday by 1.22 to 1 and Daily CPFL Ratio was holding moderately “Overbought” at 1.45.
• Cumulative Volume in both S&P 500 and S&P Emini has continued to under perform S&P pricing on upside since November 16 S&P 500 low (1343.35) and has retraced less than 50% of decline since September 14, despite bigger gains in cash S&P.

Market Overview – What We Think:

• Market has been dawdling slightly lower for better part of past week, but with some internals such as Daily MAAD continuing to work higher, we would not be surprised to see more strength on near-term trend.
• Strength back above December 3 intraday high at S&P 1423.73 would suggest possible gains toward upper edge of 10-Week Price Channel (1453.21) and resistance in 1450 area.
• While more buying on short-term is possible, continuing low volume as reflected in Cumulative Volume numbers would not bode well for strength morphing into Intermediate Cycle reversal to positive. As a consequence, we suspect short-term strength will not cause larger Intermediate Cycle reversal to positive.
• Extent to which September/October highs (1474.51—S&P 500) might be seriously challenged could determine whether or not current rally is upside feint in Intermediate Cycle negative, or something more lasting.
• And 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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