There’s also the statistical fact that ALL Cycles are historically “Overbought” – Minor, Intermediate, and Major. Can pricing still go higher in the face of “Overbought” readings? Yes. Will it? Maybe. Fact is, all trends are also still positive. The most recent short-term trend has been rallying since the S&P December 31 low at 1398.11. The Intermediate Cycle has been rallying since the November 16 S&P low at 1343.35. And the long-term trend has been net higher since March 2009 when the S&P hit 666.79. Weakness in the fall of 2011 challenged the Major Cycle, but that was resolved and new highs followed. What has not been resolved, however, is a distinct lack of upside volume for more than a year as reflected in our Cumulative Volume (CV) numbers in the S&P, Dow 30, and NASDAQ (No volume data is available for the VAY).
Market Overview – What We Think:
- Minor Cycle has begun to look increasingly vulnerable to extent we suspect ascent of market is unsustainable in face of “Overbought” conditions in all cycles and fact major resistance looms in majors like S&P 500 and Dow 30.
- In spite of bullish price “tendencies” since November lows, uptrend initiated in March 2009 is mature and could very likely be much closer to an end point than not. In fact, upside “measured move” targets calculated on a variety of cycle points suggest that on average S&P, Dow 30, NASDAQ, and VAY could be within 10% of ultimate highs in this bull trend.
- So long as pricing and indicators are not in synch on upside as they were from March 2009 until May 2011, lingering long-term doubts will persist, and we will continue to wonder how much longer this market will be able to shake off unfavorable indicator divergences.
- Some have pointed out that Dow Theory confirmation generated on January 18 is very positive development, but it’s important to remember one previous Dow Theory confirmation that was generated on September 3, 1929 at the precise high (381.71) of the bull market begun several years earlier. That high was not exceeded for the next 25 years.
There is also that array of indicators we have continued to highlight as upside failures since the spring of 2011. Our Most Actives Advance/Decline Line (MAAD) remains in a long-term downtrend effected in mid-1999 and into the early 2000 market highs. It has shown some strength since the November lows, recently broke above the September highs, and is in a position to challenge its long-term downtrend as of last Friday. But the Weekly MAAD Ratio is “Overbought” and it is certainly nowhere near overcoming the 1999 resistance highs. Our Call/Put Dollar Value Flow Line (CPFL) has also shown some life over the past few months and even remains in a gradually up sloping trend initiated after the December 2011 lows. But it is nowhere near overcoming major resistance made the week of February 2011. We mentioned Cumulative Volume that continues to under perform in the S&P Emini futures contract, the Dow 30, and the NASDAQ Composite index. Of the major indexes we follow, only CV in the S&P 500 cash index has eked out a new short to intermediate-term high above last September’s levels, but even that is only at a point 50% below the 2007 highs.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)