S&P 500 nearing critical technical target

Stock market chart

Market Overview – What We Know:

• S&P 500 and Dow 30 posted good gains Tuesday, but NASDAQ Composite and Value Line index were mixed on day.
• Trading volume rose nearly 8% compared to Monday’s activity.
• All trends remain positive, but all, including Minor, Intermediate and Major Cycles, are also historically “Overbought.”
• S&P 500 is closing in on upside, short-term measured move target at 1510. Index rallied as far as 1509.35 via intraday trading Tuesday.
• S&P 500 needs to sell below lower edge of 10-Day Price Channel at 1474.79 through Wednesday to suggest reversal of short-term trend to negative. Intermediate trend turns negative below 1393.45 through Friday.
• Daily MAAD was slightly positive Tuesday and eked out another near-term high Tuesday with 12 issues positive and 8 negative.
• Daily CPFL hit another new short-term high Monday and was positive by 1.67 to 1.
• Cumulative Volume (CV) in S&P 500 hit a new short-term high Tuesday, but action was not confirmed by S&P Emini or NASDAQ Composite.

Market Overview – What We Think:

• Short-term trend in all of major indexes looks overextended on upside in face of “Overbought” conditions and simple fact prices cannot continue higher indefinitely without some retrenching.
• If move since November lows turns out to be A-B-C rally with “B” leg pullback from December 19 to January 2, “C” leg rally could be in termination phase toward 1510.
• Confirming movement in cash S&P CV to new short-term high is positive, but failure of CV In S&P Emini and NASDAQ Composite on same cycle means strength has been selective.
• Suggestion lingers that rally since November lows has been fueled by weaker and weaker hands. Larger cycles have also lacked indicator confirmation since early 2011.
• Longer-term lingering weakness in MAAD, CPFL, Cumulative Volume, and Momentum, are an indication market could be on borrowed time. Nothing but new highs by all our key indicators, an unlikely event, would erase negative tone.

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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