Stock market trend still positive although indicators waning

Weekly Report: MAAD and CPFL Indicator Analysis

Chart, rising, falling Chart, rising, falling

 

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1517.93

+4.76

+.31%

Dow Jones Industrials

13992.97

-16.82

-.12%

NASDAQ Composite

3193.87

+14.77

+.46%

Value Line Arithmetic Index

3423.88

+12.23

+.35%

Minor Cycle (Short-term trend lasting days to a few weeks) Positive

Intermediate Cycle (Medium trend lasting weeks to several months) Positive

Major Cycle (Long-term trend lasting several months to years) Positive

The snail’s pace race occurring in the stock market continued last week in the S&P 500, NASDAQ Composite, and Value Line index, the latter of which that rallied to new all-time closing high Friday. The Dow Jones 30 were down slightly on the week. Market volume deteriorated by just under 6%. But underscoring all activity is the fact that all cycles, including Minor, Intermediate, and Major remain positive. That fact is underscored further by lingering “Overbought” conditions in all and short-term Momentum that has confirmed none of the rally to new short to intermediate highs in any of the major indexes.

There is an undeniable truth to this market, however -- non-confirmations can persist. There are times when indicators are in synch with index pricing, and there are times when the reverse is true. Since the latter condition has been evident for the better part of the past two years and since the price highs of May 2011, an idle observer could be inclined to suggest that the indicators are not working. Not so.

Indicators, at best, are early warning devices. They signal possible future changes in price trend just as meteorologists check barometric readings to determine the likelihood of a storm. And because the nature of stock market forecasting must, by definition, allow for variability in extremes, either up or down, what was deemed extreme indicator negativity at the end of one market cycle may not be quite the same in another. For example, indicator divergences into the last bull market top in the fall of 2007 began to develop about six months before the eventual top. In 2000 the lead time was nearly 10 months. In the current instance the fact that nearly all of our major indicators peaked in the spring of 2011 could turn out to less premature than ultimately prescient.

Market Overview – What We Know:

  • Major indexes were somewhat mixed last week with a slight upward bias. Only the Dow Jones 30 was negative and only the Value Line index rallied to a slightly higher all-time closing high.
  • All cycles, including Minor, Intermediate, and Major, remain positive.
  • Market volume declined by 6%.
  • S&P 500 becomes negative on Minor Cycle below lower edge of 10-Day Price Channel (1496.16) and on Intermediate Cycle below lower edge of 10-Week Price Channel (1406.37).
  • Daily MAAD eked out new short-term high last Wednesday, but did not confirm S&P 500 strength to new short to intermediate-term high Friday. Weekly MAAD continues to hold below late April 2011 high, but was last positioned to threaten on upside long-term downtrend line stretching back to pre-2000 market high.
  • Daily CPFL hit new short-term high last week, but remains well below major resistance high created week ending February 25, 2011. Daily CPFL Ratio was “Overbought” at 1.60 while the Weekly Ratio was overheated at 1.61.
  • Cumulative Volume (CV) in S&P 500 was last at new short to intermediate high, but indicator has only recovered to level of July 2011 when S&P was bid near 1340. Overall, CV in ALL of major indexes remains weaker than pricing.

As we’ve noted before, off of the March 2009 lows and into the May 2011 highs, the S&P 500 gained just under 106%. Since those indicators peaked in May 2011, the S&P has only gained a little over 10%. Of course individual issues and other indexes have done better or worse over the past two years, but that is always the case in any market cycle. In that same time frame since March 2009 Netflix (NFLX) rallied from $34 to $304, declined back to about $53 and has since recovered toward $188. Similarly Apple (AAPL) rallied from the low 80s to $705.07 and was last near $475.

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