Bulls have thin upside edge in stock market

Weekly Review: MAAD, CPFL indicator analysis

Market Overview – What We Think:

  • Minor Cycle uptrend begun after November 16 lows (1343.35—S&P 500) remains intact, despite sharp downdraft of nearly 50 points in S&P futures last Thursday evening. But near-term trend has begun to look increasingly tired.
  • Strength above December 18 intraday high (1448.00—S&P 500) would re-assert short-term advance, but would not be good enough to overcome resistance at September 14 high (1474.51), point that must be overcome to re-assert Major Cycle uptrend begun in March 2009.
  • As a consequence, larger issue remains relationship of Minor Cycle uptrend to still negative Intermediate Cycle and those September highs. Market is approaching point at which intermediate trend will be resolved positively or negatively. Failure on the upside would underscore notion strength since November 16 is only a countertrend rally.
  • 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 negative indicator divergences.

Then there’s our Call/Put Dollar Value Flow Line (CPFL) that has been moving sharply higher over the past several sessions. Daily CPFL was positive by 6.4 to 1 last Thursday, and despite Friday’s net index losses, was up 4.7 to 1 on Friday. The indicator remains in a shallow uptrend begun a little over a year ago and is “Oversold” on the Intermediate Cycle. But the indicator has only retraced about 50% of its decline since mid-September, is “Overbought” on the Minor Cycle, and is nowhere near bettering its major resistance high put in place in February 2011, a little less than three months before the broad market peaked on the Intermediate Cycle in May 2011.

Daily S & P 500 with Cumulative Volume (CV)

cumulative, volume daily

Weekly S & P 500 with Cumulative Volume (CV)

weekly, cumulative, volume

There is also market Momentum that can peak about one-half way through a price move. Short-term Momentum in the rally that began after the November 16 lows peaked on December 5. That implies an S&P high for the rally toward 1465. The most recent high in intermediate-term Momentum was back on September 21. No target is suggested and the only information currently available is a negative divergence with price. Major Cycle Momentum peaked in March 2010. S&P pricing at that point toward 1150 suggests a possible upside target on the long-term trend toward 1550. But, in addition to the “distance” part of a measurement, there is also the time factor. Sometimes “distance” can be truncated if the “time” it takes to get to the target is labored.

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