Stock market challenged by resistance on low volume

Stock market chart

Market Overview – What We Know:

• Major indexes pulled back fractionally Monday. None posted new short to intermediate-term highs via intraday price action.
• Market volume shrank 12% compared to Friday’s levels.
• All trends remain positive on Minor, Intermediate and Major Cycles, but are also historically “Overbought.”
• To suggest short-term negative, S&P 500 must decline below lower edge of 10-Day Price Channel at 1496.44 through Tuesday. Intermediate trend turns negative below 1406.37 through Friday.
• Daily MAAD rallied to new short-term high Monday and to best level since November 16 intermediate low. Indicator also continues to hold below intermediate resistance made last March 20. Fifteen issues were positive and 5 were negative Monday. Daily MAAD Ratio was marginally “Overbought” at 1.22.
• Daily CPFL was negative was negative Monday by 1.34 to 1 and pulled back slightly from new short to intermediate-term high made Friday. Daily CPFL Ratio was marginally “Overbought” at 1.23.
• Cumulative Volume (CV) in S&P Emini, Dow 30, and NASDAQ Composite continues to under perform pricing.

Market Overview – What We Think:

• Waiting game continues as S&P 500 remains confined to relatively up sloping trading range that has persisted for better part of past three weeks.
• Range in which S&P seems confined is at long-term resistance line connecting highs of early April and mid-September 2012. Cumulative Volume, although somewhat weaker, is also hung up at similar resistance points.
• It also remains to be seen whether or not major indexes will have the power to overcome price and Cumulative Volume resistance, or if developing price action could prove to last hurrah of short-term rally begun December 28 and intermediate-term uptrend begun November 16.
• “Overbought” conditions on all cycles suggest a pullback should not be ruled out. There is also simple fact prices cannot continue higher indefinitely without a correction.
• 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 endgame since upside targets have been met.
• Longer-term lingering weakness in MAAD, CPFL, Cumulative Volume, and Momentum, since spring 2011 highs is an indication market has not had technical underpinnings evident in first part of bull market from March 2009 to May 2011. Nothing but new highs by all our key indicators, an unlikely event, would erase that technical skepticism on longer term.

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.

Next page: Indicator review