Market hits highs on lower volume, bearish volatility

Weekly Review: MAAD & CPFL Analysis

Market Overview – What We Think:

  • Price improvement and new highs in major indexes late last week resolved tone of recent near-term hesitation, but lingering short-term “Overbought” conditions and low levels of volatility leave market no less vulnerable than when it entered lateral consolidation two weeks ago.
  • While Minor Cycle negative could have negative implications for larger Intermediate Cycle, until there is enough selling to definitively end advance in effect since late February lows, intermediate trend will remain in effect.
  • There are tidbits of negativity that continue to lurk in background and which could be suggestive of probable near-term direction of market. Despite net gains last week, Momentum on Minor cycle did not make new highs and could easily flip negative. And Daily MAAD did not confirm new highs in indexes last Friday.
  • In meantime, by default, 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.

A couple of weeks ago in the face of “Overbought” short-term readings the market looked as if it might be on the cusp of yet another near-term pullback. Prices moved laterally for several days, but except for a modest intraday dip on March 19, there was little downside conviction. Buyers were waiting to buy just below the market for perceived “bargains.” Then last Friday the bulls blew it out of the water by propelling prices to new all-time closing highs in the S&P 500, Dow Jones Industrial Average, and the Value Line index. The NASDAQ Composite moved to its best level since March 2009 like the others, but has yet to make a new all-time high above its March 2000 high at 5132.52.

Ironically, however, despite what looked like a brief price consolidation prior to movement to new highs, all cycles including Minor, Intermediate, and Major, remain as “Overbought” as they were going into the price hesitation two weeks ago. In other words, whereas the short-term lows in December and February were accompanied by short-term “Oversold” conditions, strength to new highs last Friday was in the face of still overheated statistics.

Daily S & P 500 with Cumulative Volume (CV)

Weekly S & P 500 with Cumulative Volume (CV)

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