Tuesday's stock market rally falls short of Monday's losses

Market Overview – What We Know:

• All four major indexes we cover rallied modestly from Monday’s Losses, but none fully retraced all of negativity. While S&P 500 eked out new short to intermediate high via intraday action, S&P’s closing level was not a new closing high.
• Trading volume rose 10% compared to Mondays levels.
• All trends remain positive on Minor, Intermediate and Major Cycles, but all are also historically “Overbought.”
• S&P 500 must decline below lower edge of 10-Day Price Channel at 1492.17 through Wednesday to signal new negative short-term trend. Intermediate trend turns negative below 1395.00 through Friday.
• Daily MAAD recovered all of Monday’s losses Tuesday and scratched out a slightly higher and new short-term high and moved to best level since December 28 short-term low. Seventeen issues were positive with 3 negative. Daily MAAD Ratio was marginally “Overbought” at 1.24.
• Daily CPFL was positive Monday and moved to new short to intermediate-term high. Daily CPFL Ratio was moderately “Overbought” at 1.70.
• Cumulative Volume (CV) in S&P Emini, Dow 30, and NASDAQ Composite continues to under perform pricing.

Market Overview – What We Think:

• Trend under way since November lows in all of major indexes may be toward endgame given “Overbought” conditions and simple fact prices cannot continue higher indefinitely without some retrenching.
• Monday’s reversal of last Friday’s gains to new short-term highs is suggestion sellers remain just above current bids near major resistance levels.
• Short-term measured move target toward 1510 has been “teased” over past six sessions and has held to suggest Minor Cycle could be near termination phase and upside goals.
• 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 ending.
• Longer-term lingering weakness in MAAD, CPFL, Cumulative Volume, and Momentum, is an indication market could be on borrowed time. Nothing but new highs by all our key indicators, an unlikely event, would erase negative divergence.

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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About the Author

Robert McCurtain is a technical analyst/market timer, private investor and financial markets consultant based in New York City. He can be reached at traderbob@nyc.rr.com.

If you would like to read more about how the CPFL is constructed, read a Futures article on the concept. This link will take you to the MAAD article. A two-part series about system development with the MAAD also is available.