Stock market looking tired on short-term cycle

Market Overview – What We Know:

• Major indexes lost ground Thursday as more profit taking set in.
• Market volume rose 1.4% compared to Wednesday.
• Short-term trend remains positive with S&P 500 only needing to sink below lower edge of 10-Day Price Channel (1404.89 through Friday) to indicate reversal of near-term trend to negative.
• Intermediate Cycle remains negative until S&P 500 moves above upper edge of 10-Week Price Channel (1449.74 through December 14).
• Daily MAAD was net negative Thursday with 5 issues positive and 15 negative. Indicator remains above resistance point made September 14 when S&P hit short to intermediate high at 1474.51, but holds well below major resistance peak reached back on March 20. Daily MAAD was negative by 3 to 1 Thursday and Daily MAAD Ratio remains moderately “Overbought” at 1.43.
• Daily CPFL was negative Thursday by 1.30 to 1 and Daily CPFL Ratio was just above “Neutral” at 1.09.
• Cumulative Volume in S&P 500 and S&P Emini has continued to under perform S&P cash pricing since November 16 S&P 500 low (1343.35).

Market Overview – What We Think:

• We suspect time is running out on short-term uptrend in effect since November 16 lows (1343.35—S&P 500). In fact, Wednesday’s intraday high (1438.59—S&P 500) could prove to be the high for that several-weeks-old uptrend.
• In face of near-term “Overbought” conditions and fact index pricing has yet to overcome major resistance at September/October highs, we think recent strength could prove to be countertrend bounce in otherwise negative intermediate trend.
• Rally by Daily MAAD to new short-term high Wednesday suggested confirmation of recent market gains, given proximity of S&P pricing to upper edge of 10-Week Price Channel and point to surpass to suggest intermediate-term to reversal, but bullish case must still be proven, longer-term.
• In addition, until S&P rallies above September major resistance high (1474.51), any gains back toward that level could prove to be nothing but reflex rally into longer-term top.

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.