Stock market posts weekly loss; intermediate cycle at risk

Weekly Review: MAAD & CPFL Analysis


Market Snapshot:


Week Chg

Week %Chg

S&P 500 Index




Dow Jones Industrials




NASDAQ Composite




Value Line Arithmetic Index




Minor Cycle* (Short-term trend lasting days to a few weeks) Neutral / Negative

Intermediate Cycle* (Medium trend lasting weeks to several months) Positive

Major Cycle* (Long-term trend lasting several months to years) Positive

* Cycle status is based on S&P 500.

As major market cycles have matured, one gauge of maturation points has been the willingness of the investing public to buy into a bull trend, or to sell into a bear. The financial media is often dumbly complicit in the drama since it has little point of reference and views the market merely in terms of news justification derived from information acquired yesterday or today. Trends are largely irrelevant and are presumed as perpetual until, belatedly, the media picks up on the notion that the balance of buyers versus sellers has shifted because more people are happy, or more people are unhappy. Bull or bear.

In the “more happy” camp, in a recent newspaper story it was reported that a family that had been “totally” out of the stock market since 2008 was now “getting back in.” Of course, our first question would be, “based on what?” But the decision reminds us of the two guys out fishing on a lake. They are having good day. One guy says, “This is a great spot. Let’s mark it. “The other guy agrees. When they get back to shore, the first guy says, “Oh, did you mark the spot?” The other one replies, “Yes, there’s a big ‘X’ on the side of the boat.”

Market Overview – What We Know:

  • All of major indexes declined last week. NASDAQ Composite and Value Line index are negative on Minor Cycle with S&P 500 and Dow 30 close to confirming short-term negative trends.
  • S&P 500 and Dow 30 remain “Overbought” with NASDAQ and VAY at “Neutral” with a negative bias.
  • Market volume rose 30% last week, but increasing activity was due to fact previous week had only four tradable sessions rather than regular five.
  • S&P 500 weakness below lower edge of 10-Day Price Channel (1552.00 through Monday) would suggest end to short-term advance in effect since February 26. Intermediate trend remains positive until lower edge of 10-Week Price Channel (1493.28 through April 12).
  • Daily MAAD remained below its March 11 short to intermediate-term high last week with similar action in Weekly MAAD that remains in vicinity of long-term trend line stretching back to 1999 at point prior to March 2000 market highs. Weekly MAAD has yet to overcome resistance made in spring of 2011.
  • Daily CPFL reached new short to intermediate-term March 27. Indicator remains in gradually upsloping longer-term advance begun in December 2011, but is nowhere near major resistance plot high made week of February 25, 2011.

Many investors are like those fishermen -- they approach the market as the vehicle for what they “want” later, on the “long term,” in that vague Neverland perpetuated by the sales departments of Wall Street firms. “Time the market? Good heavens! Not possible.” Besides, everyone knows Warren Buffet, George Soros, and Marty Schwartz (one of the great traders of all-time) were just “lucky.” In addition, most investors have no point of orientation from which to make decisions except mutual fund results for the past five years while professing little-defined, financial goals like “I want a 10% return with no risk when I retire.” Unfortunately, they do not realize the stock market is not a perpetual cash cow (unless they are high velocity traders), and the odds are excellent they will sell when they are least comfortable and will buy when they are most comfortable. They will succumb to herd mentality. Thus, the family that is reinvesting more than four years into a mature bull market that began in March 2009.

Market Overview – What We Think:

  • Unconfirmed new highs in major indexes last week with subsequent weakness suggest short-term advance begun after February lows is probably over.
  • Extent to which Minor Cycle weakens will determine staying power of intermediate advance that began after November lows (1343.35—S&P 500). Trendline weakness below 1530 in S&P 500 would fracture uptrend in effect since November.
  • While its possible current market negativity could prove to be yet another near-term corrective phase in advance in effect since November lows, and by definition longer bull trend, it is a certainty current intermediate uptrend will end. Questions is, are current negative divergences enough to end that trend?
  • In meantime and until verification, we must regard all short-term pullbacks as mere hesitations in larger intermediate advance, and Major Cycle trend that has been underway since March 2009.
  • 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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