Stock market rebounds on low volume

Stock market chart, technical analysis

Market Overview – What We Know:

• Short-covering, bargain-hunting rally developed Tuesday with all of major indexes posting marginal gains.
• Trading volume decreased by 5% as compared to Tuesday.
• Short-term trend remains negative and S&P 500 must rally above upper edge of 10-Day Price Channel (1524.91 through Wednesday) to reverse new Minor Cycle negative to positive. Intermediate trend turns negative below lower edge of 10-Week Price Channel (1433.37 through Friday).
• Daily MAAD was positive by 14 to 5 Tuesday, but remains in short-term downtrend following short-term high on February 19. Daily MAAD Ratio remains in negative territory (.84) and toward “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 negative Tuesday by 1.16 to 1 and moved lower from new short-term high created February 19. Daily CPFL Ratio was marginally “Overbought” at 1.29.

Market Overview – What We Think:

• Damage to short-term uptrend last Wednesday and Thursday with Monday’s sharp losses, and despite Tuesday’s marginal rebound, 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 all negative to suggest next event on near term will be to establish short-term low. Where that bottom develops will be important relative to staying power of larger Intermediate Cycle.
• Until there is negative reversal of larger cycles it remains to be seen whether or not indexes will have 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 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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