Market hits highs on lower volume, bearish volatility

Weekly Review: MAAD & CPFL Analysis

In the background, all of our key indicators continue to regard market strength in excess of the May 2011 highs lackadaisically. Our Most Actives Advance/Decline Line (MAAD), Call/Put Dollar Value Flow Line (CPFL), Cumulative Volume (CV), Momentum on especially the major Cycle have remained much weaker than index pricing.

While we continue to defer to the bullish contingent as prices move higher, it is a certainty the “up a little bit, down a little bit” scenario will result in a “summiting” of this bull market. Then a correction of meaningful proportions will develop. It has taken far longer than we anticipated, but it will happen. The short-term trend will be the first cycle to roll over.

McCurtain Most Actives Advance/Decline Line (MAAD)

Despite strength by the S&P 500 to a new all-time high last week, Daily and Weekly MAAD did not confirm that price movement. Both remain below short to intermediate-term highs made March 11. While it wouldn’t take much more buying to erase those negative divergences, they nevertheless remain intact and must be eliminated to get MAAD on both cycles back in synch with the market, at least on the near-term.

Longer-term there is still the issue with Weekly MAAD failing to better its spring 2011 high. And the fact that Weekly MAAD continues to hover in the vicinity of a very long-term downtrend line, resistance, stretching back to 1999 at a point that preceded the early 2000 highs.

Simply put, MAAD appears to have been out of synch with index pricing for the better part of the past two years. But considering the fact this market has gained nowhere near the price points from May 2011 to date, as compared to the rally from March 2009 to May 2011 when MAAD was in synch, it would seem that there is an element of lingering risk in this market that should be taken seriously.

McCurtain Call/Put Dollar Value Flow Line (CPFL)

CPFL inched to a new short to intermediate-term high last Wednesday, but as has been the case for months is nowhere near overcoming major resistance put in place the week of February 25, 2011. While there is no denying the fact the indicator has been moving net higher since making a longer-term low in late 2011, it is also true that the levels of enthusiasm as measured by the balance of Call Dollar Volume compared to Put Dollar Volume is historically feeble.

For CPFL to get “back in the game” to the extent it confirms index price action by bettering its February 2011 high could prove to be a tall order, considering the developing low levels of volatility that have often coincided with significant market highs on the short to intermediate-term cycles.

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