Stock market volatility fades, cumulative volume lags price

Weekly Review: MAAD & CPFL Analysis

Our reasoning, or better yet, our justification?

In the accompanying weekly chart of Cumulative Volume (CV) going back to mid-2007, notice the relationship of CV to the S&P 500 and the Dow 30. Both CV lines not only sank below their 2003 low points in the 2008-2009 bear market, but they made new all-time lows. What those negative CV divergences are saying is that MASSIVE liquidation came into the stock market during the 2008-2009 bear market. MASSIVE LIQUIDATION.

Market Overview – What We Know:

  • Major indexes posted small gains last week with all rallying to new short and intermediate highs. Dow Jones 30, 20, and Value Line index were at new all-time closing highs. S&P 500 was just shy of October 9, 2007 closing high at 1565.15 while NASDAQ Composite index remains 37% below March 2000 peak.
  • Trading volume rose more than 6% last week with a big upward bump on Friday when overall activity rose nearly 69% compared to last Thursday’s levels.
  • All Cycle remains positive, but historically “Overbought.”
  • To turn Minor Cycle negative and to reverse uptrend in effect since February 26 low (1485.01), S&P 500 must sell below lower edge of 10-Day Price Channel (1530.82 through Monday). Intermediate trend remains positive until lower edge of 10-Week Price Channel (1472.85 through March 22).
  • Daily MAAD rallied to best level last week since March 2009. Weekly MAAD has yet to overcome resistance made in spring of 2011 even though indicator has slightly penetrated long-term downtrend line stretching back to 1999 and point prior to 2000 market highs. Daily and Weekly MAAD Ratios were last moderately “Overbought” at 1.59 and 1.42, respectively.
  • Daily CPFL popped to new short to intermediate-term high last week with strong showing on Friday when Calls on Dollar Value basis outperformed Puts by 8 to 1. But CPFL nonetheless remains well below major resistance put in place week of February 25, 2011.

Market Overview – What We Think:

  • While resumption of short-term buying following February 26 lows (1485.01—S&P 500) has resulted in new short to intermediate-term highs in all of major indexes, short-term trend has moved back into “Overbought” territory while historically low levels of volatility have begun to suggest longevity of Intermediate Cycle, at least, could be in doubt..
  • Health of short-term trend will once again determine the point at which larger Intermediate Cycle will either reverse to negative or will contain a short term correction, as has been case twice since November 16 intermediate term low in S&P 500 (1343.35).
  • As a consequence, while Intermediate Cycle remains positive, we must regard all short-term pullbacks as merely hesitations in larger cycle advance, including major trend that has been favorable since March 2009 lows.
  • Conversely, so long as pricing and indicators are not in synch on upside, as they were from March 2009 until May 2011, lingering doubts will persist about long-term viability of Major Cycle and we will continue to wonder how much longer this market will be able to shake off unfavorable indicator divergences.

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