Stock market approaching critical point on intermediate cycle

Weekly Review: MAAD, CPFL indicator analysis

Stock index, chart, technical analysis Stock index, chart, technical analysis

 

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1418.07

+1.89

+.13%

Dow Jones Industrials

13155.13

+129.55

+.99%

NASDAQ Composite

2978.04

-32.20

-1.06%

Value Line Arithmetic Index

3081.25

+8.44

-.27%

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

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

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

Over the past three weeks and since the November 16 short-term lows, the S&P 500 has rallied 5.9%, the Dow Jones Industrials 5.5%, the NASDAQ Composite 7.8%, and the Value Line index 7.6%. But with strength has come near-term “Overbought” conditions equal to the “Oversold” levels going into the near-term low nearly a month ago. In addition, the S&P 500, Dow 30, and NASDAQ have all retraced the lion’s share of a “normal” 40% to 60% of the decline since the late September/early October highs (S&P--61.2%, Dow--57.6%, and NASDAQ 56.8%). Only the Value Line index has rallied beyond “normal” limits with a gain of 72.4%.

In addition, the larger Intermediate Cycle, as measured by the relationship between index pricing and the upper edges of defined 10-Week Price Channels, remains negative. Overall market volume should remain lackluster, especially over the next several weeks into the Christmas and New Years holidays. In fact, last week activity was off 7%. There has also been a notable increase in secondary issues over the past few weeks, a tendency that can occur toward market tops. After shrinking after the September/October highs both in terms of dollar amounts offered and numbers of shares sold, the secondary issues indicator has popped back to where it was at the early fall Intermediate highs with some increase in the number of companies offering issues (last at 27 vs. 16 in mid-September).

On the flip and bullish side of the coin, we’ve noticed that our reliable Daily Most Actives Advance/Decline Line (MAAD) has been outperforming the S&P since the indicator made a short-term low back on November 14, a couple of days before the broad market bottomed. Daily MAAD has also not only fractured a defined downtrend line stretching back to its March 20 longer-term resistance high with a midway point on September 14, but the indicator has recovered nearly 93% of its decline since that September 14 peak. While that action may be bullish on the near-term cycle, the indicator must better the September 14 high in the face of a lingering short-term “Overbought” condition (1.62). And there is the additional reality Daily MAAD has recovered only 49% of its decline since making a major resistance high on March 20.

Could Daily MAAD be suggesting the major indexes could rally further? Maybe, but with Weekly MAAD still under performing the market while holding below a defined and solid long-term down trend line with three points of contact in May 2011, March 2012, and September 2012, it could be that a currently “enthusiastic” Daily MAAD is merely reflecting a lively upside pop in a larger and negative Intermediate Cycle trend.

But the defining moment on the Intermediate Cycle pullback that began nearly three months ago is rapidly approaching. Either the short-term advance that began mid-November will prove to be a reflex rally within the context of an intermediate-term negative, or it will be viewed in retrospect as the beginning of yet another upleg in the bull trend that began in March 2009. Upside trigger points would come at the upper edges of 10-Week Price Channels (1449.74—S&P 500) with a long-term re-assertion of the bull move with strength to a new high in the S&P 500 back above its September 14 intraday peak at 1474.51.

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