Stock market minor cycle negative; intermediate status looms

Weekly Review: MAAD & CPFL Analysis

Market Overview – What We Think:

  • In face of negative short-term volatility readings, newly negative short-term Momentum and our proprietary Trading Oscillators, odds are good Minor Cycle could remain under pressure, net, in sessions just ahead.
  • But larger question is how short-term weakness will ultimately affect larger Intermediate Cycle that has been underway since November 16 lows.
  • While intermediate trend is “Overbought” and mature, we must see price breaks below trailing 10-Week Price Channels with coincident downside follow-through from Cumulative Volume (CV), MAAD, and CPFL.
  • Nonetheless, until short-term does decisively threaten larger Intermediate Cycle, we must regard current near-term negativity as merely another pullback in larger intermediate rally underway since November 16, and Major Cycle since March 2009.
  • In background, so long as pricing and indicators are not in synch on upside, as they were from March 2009 until May 2011, doubts will persist as to long-term viability of Major Cycle and we will continue to wonder how much longer market will be able to shake off unfavorable indicator divergences.

Admittedly, this bull market has continued longer than we expected. For more than a year following the spring 2011 highs that was followed by the intermediate-term pullback into the lows of October 2011, and then subsequent market strength to a series of higher highs throughout 2012 to date, we have continued to suggest that because of weak indicator performance, the odds for a sustained longer-term advance equivalent to the strength from March 2009 to May 2011 when the S&P 500 rallied 106%, was unlikely. And we were surprised that the market, as measured by the major indexes, was able to make higher highs in April and September 2012 and recently on April 11 (1597.35—S&P 500). As of last Friday, the S&P 500 was 13.4% above its May 2011 high (1370.58—S&P 500).

While strength over the past two years has accounted for a diminished relative gain of just under 13% compared to the first leg up, that alone has not provided enough reason to be cautious. Some might suggest that an investor has had to put assets somewhere and with interest rates so low, some risk had to be taken to get some return. Thus, they have remained in the stock market.

Daily S & P 500 with Cumulative Volume (CV)

Weekly S & P 500 with Cumulative Volume (CV)

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