Overbought stock indexes squeak out more gains

Market Overview – What We Know:

• All major indexes finished fractionally higher Wednesday, but only Dow Jones Industrial Average and Value Line index closed at new all-time highs.
• All cycles remain positive.
• Market volume decreased by 6.3% Wednesday.
• To signal short-term negative, S&P 500 needs to decline below lower edge of 10-Day Price Channel (1518.89 through Thursday). Intermediate Cycle in S&P 500 becomes negative below lower edge of 10-Week Price Channel (1459.67 through March 15).
• Daily MAAD was slightly negative Wednesday by 8 to 11 and pulled back again from new short and intermediate-term high reached March 11 at highest level since March 2009. Daily MAAD Ratio was moderately “Overbought” at 1.61.
• Daily CPFL negative by 1.54 to 1 Wednesday with sharp drop in Call/Put Dollar Values. Indicator was plotted just below new short to intermediate high reached Tuesday. Daily CPFL Ratio was moderately “Overbought” at 1.61.
• Cumulative Volume (CV) in both S&P 500 and S&P Emini remains in synch with S&P 500 pricing in that both have moved higher since November lows, but long-term negative CV negative persist.

Market Overview – What We Think:

• So long as short-term trend remains positive, intermediate uptrend begun after November 16 lows remains intact.
• But while S&P 500 has moved to highest levels since November lows, index has yet to overcome previous bull market closing high (1565.15) made October 9, 2007 to suggest long-term resistance remains intact. Given upside momentum of market, however, nitpicking over confirmatory action when pricing and trends remain favorable could prove problematic.
• Intermediate Cycle remains historically “Overbought,” but statistics could continue to lack prescience until short-term trend breaks to downside to justify “Overbought” warnings on intermediate trend. With only two brief short-term lulls, one in December and one recently, tone on Intermediate Cycle has been net positive since November 16.
• As a consequence, until larger cycles reverse to negative, all Minor Cycle pullbacks must be regarded as just that – short-term corrections within context of larger cycle positives.

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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About the Author

Robert McCurtain is a technical analyst/market timer, private investor and financial markets consultant based in New York City. He can be reached at traderbob@nyc.rr.com.

If you would like to read more about how the CPFL is constructed, read a Futures article on the concept. This link will take you to the MAAD article. A two-part series about system development with the MAAD also is available.