Stock market pulls back, challenging short-term trend

Stock market chart, technical analysis

Market Overview – What We Know:

• Major indexes suffered small losses Thursday.
• Trading volume rose 22%.
• Short-term trend remains negative. S&P 500 must rally above upper edge of 10-Day Price Channel (1522.00 through Friday) to reverse new Minor Cycle negative to positive. Intermediate trend turns negative below lower edge of 10-Week Price Channel (1433.37 through Friday).
• In wake of September 19 short-term high, Daily MAAD was negative by 7 to 13 Thursday. Daily MAAD Ratio remains in negative territory (.86) and toward “Oversold.” Defined short-term uptrend in Daily MAAD in effect since late December low (1398.11—S&P 500) has been ended.
• Daily CPFL was positive Thursday by 2.34 to 1 and moved slightly higher, but remains below short-term high created February 19. Daily CPFL Ratio was marginally “Overbought” at 1.40.

Market Overview – What We Think:

• Market strength since Tuesday’s interim low (1485.01) notwithstanding, until there is price movement in S&P 500 back above upper edge of 10-Day Price Channel, all strength must be regarded as nothing but short-covering/bargain-hunting rally. But then, even if S&P rallies above 10-Day Price Channel, buying back above February 19 intraday high (1530.94) is essential and would signal resumption of intermediate uptrend begun after November lows.
• Given strength over past couple of days, is it possible short-term correction is over? It’s possible, but not likely. While there were obviously buyers just below market into Tuesday’s lows, do they have power to get intermediate rally going again?
• Interestingly, despite gains after Tuesday’s lows, short-term Momentum, our proprietary Trading Oscillators, and Daily MAAD Ratio have all remained negative to suggest short-term downtrend may not yet be over.
• Until larger cycles reverse to negative, all Minor Cycle pullbacks must be regarded as just that – short-term pullbacks within context of larger cycle positives even though longer-term negative indicator divergences, most of which were created in early 2011, remain intact.

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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