Market sinks Thursday, but selling momentum lessens

Stock index chart, technical analysis

Market Overview – What We Know:

• Major indexes succumbed to selling pressures again Thursday, but rate of decent was diminished somewhat with some bargain hunting developing later in session. Value Line index and NASDAQ Composite were biggest losers on day.
• Market volume rose by 2.4% as compared to Wednesday’s levels.
• Short-term trend that is still “Overbought” looks increasingly negative with all of major indexes last trading below lower edges of defined 10-Day Price Channels. S&P 500 would now have to rise above upper edge of 10-Day Price Channel (1519.46 through Friday) to put short-term trend back on positive footing. Intermediate trend turns negative below lower edge of 10-Week Price Channel (1419.11 through Friday).
• Daily MAAD was negative Thursday by 3 to 17 and Daily MAAD Ratio dipped into negative territory for first time since January 8. Defined short-term uptrend In Daily MAAD in effect since late December low (1398.11—S&P 500) has been breached on downside.
• Daily CPFL was positive by 1.26 to 1 Thursday, but was still below new short-term high created Tuesday. Daily CPFL Ratio was moderately “Overbought” at 1.70.

Market Overview – What We Think:

• Damage to short-term positive Wednesday and again Thursday and downside break below defined near-term uptrend by Daily MAAD with Daily MAAD Ratio negative below 1.00, is solid indication Minor Cycle advance in effect since late December is over.
• Extent of developing negativity on Minor Cycle will determine staying power of larger Intermediate Cycle that has been underway since November lows (1343.35—S&P 500).
• With short-term Momentum signaling no confidence in upside move since mid-January, short-term reversal to negative at this time should be no surprise.
• Until there is a confirmed cyclical breakdown on larger cycles, however, it remains to be seen whether or not indexes will have the power to continue higher once short-term correction is over. Negative indicator divergences, most of which were created in early 2011, remain in effect. Nothing but new highs in MAAD, CPFL, Cumulative Volume (CV), and Momentum, an unlikely event, would erase longer-term statistical skepticism.

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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