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

Daily S & P 500 with Cumulative Volume (CV)

Weekly S & P 500 with Cumulative Volume (CV)

Quite simply, it is suggesting that strength since the March 2009 S&P 500 price lows could prove to be nothing but a deteriorating volume, retracement rally following the establishment of a significant high in the fall of 2007. A “test” of the March 2009 low could follow. As the old saying goes, “markets can fall of their own weight, but it takes volume to keep a bull trend moving higher.” We suspect this current market may be no exception to that old rule, given the increasing inability of index prices to significantly exceed, on a relative level, the price highs made in the spring of 2011 when nearly all of our indicators made long-term highs.

Closer to home, the short-term uptrend that began after the November 16 short to intermediate-term lows is looking increasingly tired. Last Wednesday’s intraday high in the S&P 500 at 1438.59 could prove to be the peak for that Minor Cycle rally which could still prove to be nothing but a reflex bounce within the context of a lingering Intermediate Cycle negative. If we are correct in our assessment, we would look for the short-term trend to signal a negative reversal within the next several sessions by declining below the lower edge of its 10-Day Price Channel (1407.21 through Monday) with subsequent negative confirmation from our Trading Oscillators, MAAD, CPFL, and short-term Momentum. What would then become an issue would be whether or not the November 16 lows (1343.35—S&P 500) would be seriously threatened. Selling below those points would not only re-assert negativity, but could bring the 3 1/2-year-old uptrend into view if prices threaten the lower edges of trailing 10-Month Price Channels (1293.26—S&P 500 through December).

Daily S & P 500 Emini Futures contract with Cumulative Volume (CV)

Weekly S & P 500 Emini Futures contract with Cumulative Volume (CV)

While some of our short-term indicators such as Daily MAAD have been a bit more enthusiastic lately, it wouldn’t take much selling to reverse that optimism since Daily MAAD has also come nowhere near a resistance high made back on March 20. Although Daily MAAD was able to better its September 14 resistance high last Tuesday, ensuing strength has tended to quickly push the Daily MAAD Ratio back toward “Overbought” levels.

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.

In sum, whether or not the current short-term trend has more room on the upside or not, what is important to keep in mind is the late September/early October Intermediate highs (1474.51—S&P 500). If those levels are exceeded with another round of buying, the long-term Cumulative Volume chart takes on increasing importance, given the proximity of CV resistance levels to current CV on the Monthly Cycle, and the recent historical failure of CV to underscore price strength. If new highs are not made, that same long-term CV chart will continue to negatively hover in the market’s statistical background. Clearly, the burden of proof remains with the bulls.

McCurtain Most Actives Advance/Decline Line (MAAD)

Daily MAAD bettered its September 14 resistance high last Wednesday as the short-term indicator has continued to out perform S&P 500 pricing since the November 16 lows. But on the larger front, after making a major high back on March 20 at a point which preceded the stalled rally into the September/October price highs, Daily MAAD has only recovered about 50% of its decline since March. Put another way, with the short-term trend looking increasingly vulnerable, Daily MAAD could prove to be prescient on the larger Intermediate Cycle, given ongoing negative divergences.

Underscoring action by Daily MAAD, the Weekly series remains in a long-term downtrend defined by indicator highs made in April 2011, March 2012, and September 2012. Strength in Weekly MAAD since the November lows has been lackluster. Nothing but a break above the 19-month-old downtrend in Weekly MAAD would suggest a more bullish tone to this market on the Major Cycle.

McCurtain Call/Put Dollar Value Flow Line (CPFL)

Daily CPFL remains in modestly rising uptrend that stretches back to December 2011. Market strength since the November 16 lows has been met with anemic buying from options players on a Dollar Value basis. And while the Daily CPFL Ratio was last near “Neutral” (.96) with the Weekly CPFL Ratio “Oversold” (.48), the truth is the indicator has demonstrated little upside enthusiasm since it peaked nearly two years ago in late February 2011. That negative variance is a persistent indication options players have been reluctant to commit to a market that has shown little net, long-term strength relative to the spring 2011 index price highs.

Conclusion

With the stock market rapidly approaching that time of the year when wins/losses for portfolios are capped and during which prognostications are made for the upcoming 12 months, we think that with the end of this year lingering and negative indicator divergences may be much closer to points of resolution in terms of index pricing. The fact that nearly one half of the bull trend initiated in March 2009 and after May 2011 has resulted in little significant index price strength should be a cause for concern. But in many quarters it is not.

*Note: Unchanged issues are not counted.

*Note: All data is for calendar week ending on Friday even though ending date may be a holiday. Unchanged issues in MAAD calculations are not counted.