S&P 500 volume failure underscored by long-term trends

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

1413.56

-4.51

-.31%

Dow Jones Industrials

13135.01

-20.12

-.15%

NASDAQ Composite

2971.33

-6.71

-.22%

Value Line Arithmetic Index

3092.50

+11.25

+.36%

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

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

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

Since the Major Cycle price lows of March 6, 2009 (666.79), the S&P 500 has rallied nearly 112% through last Friday’s close (121% through September 14 intraday and Intermediate high at 1474.51). That gain is an 82% retracement of the bear market losses suffered after the October 2007 high when the S&P reached 1576.09. By any measure, the bull trend has been powerful both in terms of price and longevity. But at this juncture, we thought it might be helpful to get a bird’s eye view of the market relative to its S&P 500 volume characteristics over the past 15-plus years including two bear markets and three bull phases, considering the fact the S&P is in the neighborhood of prices levels reached at the 2000 and 2007 bull market highs.

monthly, cumulative, volume, spIn the accompanying Monthly price chart of the S&P 500, Cumulative Volume (CV) simply kept pace with S&P price action and was relatively unremarkable from early 1997, when prices were in the throes of an advance underway since late 1994, through October 2007 (Points A, B, and C). Activity was “normal.” But in the latter stages of the bull phase that ended in the fall of 2007, trading volume was accelerating as the S&P eked out a new high (1576.09).

Market Overview – What We Know:

  • Major indexes were unsettled last week with only Value Line index able to finish in plus column.
  • Market volume increased a little under 2%.
  • Minor Cycle remains positive and S&P 500 must sell below lower edge of 10-Day Price Channel (1407.21 through Monday) to suggest reversal of short-term trend to negative. Intermediate Cycle remains negative until S&P 500 rallies above upper edge of 10-Week Price Channel (1435.85 through December 21).
  • Strength above September 14 S&P 500 intraday high at 1474.51 would be required to re-assert Major Cycle uptrend.
  • Daily MAAD bettered its September 14 intraday resistance high last Wednesday, but remains well below major resistance peak hit back on March 20. Daily MAAD Ratio remains “Overbought” (1.492) while Weekly MAAD Ratio was last into upper ranges of “Oversold” territory (.87).
  • CPFL was negative by 1.91 to 1 last week with Weekly CPFL Ratio “Oversold” at .48.
  • Cumulative Volume (CV) in both S&P 500 and S&P Emini has continued to under perform relative to S&P 500 pricing since November 16 short-term low.

Market Overview – What We Think:

  • Minor Cycle uptrend initiated after November 16 lows (1343.35—S&P 500) has begun to look increasingly tired. Nothing but strength back above last Wednesday’s highs (1438.59—S&P 500) would re-assert short-term advance.
  • Larger issue remains relationship of current Minor Cycle uptrend to still negative Intermediate Cycle and highs made in late September/early October (1474.51—S&P 500). In that context, nothing but new highs would cause Major Cycle advance begun in March 2009 to resume.
  • Market is approaching point at which larger intermediate trend will be resolved positively or negatively. At this point we continue to suspect strength since November 16 will prove to be countertrend rally in Intermediate Cycle negative.
  • In face of indicator non-confirmations that have prevailed since mid-2011, we continue to wonder how much longer this market will be able to shake off internal, indicator negativity.

The 2007/2009 bear market resulted in an S&P loss of nearly 58%. As that bear trend progressed, market volume increased, a sign of massive liquidation relative to price losses. In October 2008 CV on higher market activity not only declined below a CV chart support low made in late 2002, but the indicator sank precipitously until March 2009 (Point D). And while the S&P has been able to recover 82% of its 2007/2009 price losses since then, CV has only come back a little more than 50% while being stalled in the vicinity of what is now a major resistance point at the 2002 CV low (Point E). In fact, that resistance level was first approached on the upside in the spring of 2011 during that time frame we have repeatedly referred to as the point at which most of our key indicators like Momentum, the Most Actives Advance/Decline Line (MAAD), and the Call/Put $Value Flow Line (CPFL) all hit highs that have yet to be exceeded, despite marginal S&P gains since then. Also, after peaking in March 2009, Total Market Volume has continued to deteriorate in the face of higher S&P pricing.

So what is this long-term S&P 500 Cumulative Volume chart suggesting?

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