Short-term price break turns into stock market rout

Stock index chart, technical analysis

Market Overview – What We Know:

• Short-term trend took on more negativity Monday with sharp losses in all of major indexes. Value Line index was biggest loser, down 2.03%.
• Market volume rose more than 22% compared to last Friday’s levels.
• S&P 500 must rally above upper edge of trailing 10-Day Price Channel (1522.96 through Tuesday) to suggest reversal of new negative to positive. Intermediate trend turns negative below lower edge of 10-Week Price Channel (1433.37 through Friday).
• Daily MAAD took another hit Monday and moved to lowest levels since late January. Indicator was negative by 18 to 2. Daily MAAD Ratio remains in negative territory (.85) and headed for “Oversold” territory. Defined short-term uptrend In Daily MAAD in effect since late December low (1398.11—S&P 500) has been terminated.
• Daily CPFL was sharply negative by nearly 5 to 1 Monday and moved lower from new short-term high created February 19. Daily CPFL Ratio was marginally “Overbought” at 1.30.

Market Overview – What We Think:

• Damage to short-term uptrend last Wednesday and Thursday with Monday’s sharp losses leaves little doubt that at least Minor Cycle uptrend in effect since late December (1398.11—S&P 500) is over.
• Big question now is how will near term weakness affect larger Intermediate Cycle that has been underway since November lows (1343.35—S&P 500).
• Short-term Momentum, our proprietary Trading Oscillators, and Daily MAAD Ratio are now all negative to suggest next issue on near term will be to establish short-term low. Where that bottom develops will be important relative to next larger Intermediate Cycle.
• Until there is a negative reversal of larger cycles, however, it remains to be seen whether or not indexes will have the power to continue higher once short-term correction has ended. 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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