Stock indexes threaten new highs but indicators do not

Weekly Review: MAAD & CPFL Analysis

The answer to that question will probably ultimately rest in the ability of the short-term trend to give definition to the staying power of the larger intermediate Cycle. The uptrend begun after the November 16 intermediate-term lows (1343.35—S&P 500) remains intact to the extent the lower edge of the 10-Week Price Channel (1447.88 through March 8) has yet to be fractured and a subjectively drawn uptrend line (1505—S&P 500) that connects the November and late December lows has yet to be penetrated on the downside. If that trendline is penetrated on the downside and then the February 26 intraday lows (1485.01—S&P 500) are then breached, we would look for an almost certain reversal of the intermediate trend to negative with selling below the more definitive 10-Week Price Channel. Such action could then resolve the staying power of the long-term advance that will celebrate its fourth year this week.

Daily S & P 500 with Cumulative Volume (CV)

Weekly S & P 500 with Cumulative Volume (CV)

In the background, Daily MAAD recovered last week from its February 25 interim low, but has yet to overcome first resistance at the February 19 short-term high. Then there’s that more important intermediate peak made nearly a year ago on March 20, 2012. Weekly MAAD remains moderately “Overbought” (1.28) after tapping a 13-year-old uptrend two weeks ago, a level that is somewhat below major resistance put in place the week ending April 29, 2011 in that time frame when most of our key indicators topped out on the long term.

Daily S & P 500 Emini Futures contract with Cumulative Volume (CV)

Weekly S & P 500 Emini Futures contract with Cumulative Volume (CV)

While the Dow Jones 30 is flirting with new highs and with the Value Line index not far from a new all-time high made on February 19 (3476.94), we remained puzzled that some investors remain so enamored of a market that is only higher by about 10% relative to the May 2011 highs. Since then the S&P 500 has gained 10.7%, the Dow Jones 30, 9.4%, the NASDAQ Composite 12.1%, and the Value Line index 8.4%. That’s after the S&P rallied 106% from March 2009 to early May 2011.

Index Daily Price Channel Stops (10-Bar MAs of Lows) Weekly Monthly
 

3/4

3/5

3/6

3/7

3/8

3/8

3/31

S&P 500 Index

BUY 1522.69

BUY 1518.36

BUY 1518.21

BUY 1519.07

BUY 1518.94

SELL 1447.88

SELL 1347.47

Dow Jones Industrials

SELL 13885.09

SELL 13862.58

SELL 13860.28

SELL 13890.67

SELL 13898.61

SELL 13349.57

SELL 12675.84

NASDAQ Composite

BUY 3188.72

BUY 3178.18

BUY 3176.39

BUY 3175.82

BUY 3173.64

SELL 3051.31

SELL 2890.17

Value Line Index

BUY 3442.39

BUY 3428.62

BUY 3424.16

BUY 3421.74

BUY 3416.98

SELL 3221.65

SELL 2852.92

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.

It’s true, however, that we have made the net gains observation before and do not want to be accused of saying something repeatedly until proven correct. But the fact is without indicator corroboration, history suggests uptrends are most likely in the latter stages of an advance than in the early stages. In that context, we see few reasons to believe this market will substantially overcome negative indicator divergences or that those same indicators will stage a dramatic game of catch up.

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