Stock market bears gain edge barring new highs

Weekly Review: MAAD & CPFL Analysis

 

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1582.24

+26.99

+1.73%

Dow Jones Industrials

14712.55

+165.04

+1.13%

NASDAQ Composite

3279.26

+73.20

+2.28%

Value Line Arithmetic Index

3533.02

+88.97

+2.58%

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

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

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

* Cycle status is based on S&P 500.

While the term “No Man’s Land” is often associated with trench warfare during the First World War, the term can actually be traced back to the early 14th century when there was a “legal disagreement” over disputed territory. Inevitably the conflict was resolved, but sometimes the consequences were lethal. While the stock market is a bit more sedate if not civilized in terms of the methods used to resolve which side, bull or bear, will take the “field,” the phrase is no less appropriate prior to resolution.

Current market vagaries are no exception. Following movement to new highs (1597.35—S&P 500) on April 11 by the major indexes, some near-term selling pushed prices lower until April 18. Then buyers and short-covering caused the market to move higher while retracing nearly all of the losses since the April 11 high. The biggest problem with that return move, however, has been that Cumulative Volume (CV) in virtually all of the major indexes that report volume has only retraced about 50% of the decline in prices from April 11 to 18. That means strength on the return move has been fueled by weaker hands than those than drove prices down in the first place.

Market Overview – What We Know:

  • Major indexes gained last week and recovered large portion of losses sustained following April 18 highs. As a consequence, short-term trend took on more positive flavor this side of those highs. Lone exception is Dow Jones Industrial Average that has yet to rally above upper edge of 10-Day Price Channel.
  • Intermediate and Major Cycles remain positive.
  • Market volume declined last week by over 9% on price strength.
  • For short-term trend to take on more negative tone, S&P 500 must sell below lower edge of 10-Day Price Channel (1550.59 through Monday). Intermediate trend remains positive until lower edge of 10-Week Price Channel (1521.53 through May 3).
  • Daily and Weekly MAAD rallied to best levels since March 2009 last week, but neither indicator is anywhere near 2007 highs while having recovered only about 50% of decline since then.
  • CPFL on both Daily and Weekly cycles reached new short to intermediate-term high on April 12, but has been unable to exceed that level since then. Indicator is nowhere near major resistance high made week of February 25, 2011 and has only retraced about 50% of its long-term decline, despite net strength since December 2011.
  • While S&P 500 prices recovered larger portion of near-term decline following April 11 high (1597.35), Cumulative Volume (CV) has only come back about 50%.

But short-term volatility that tends to decline as prices rise has become more positive to the extent it has declined as prices have risen. Short-term Momentum has returned to “Neutral.” Both of our proprietary Trading Oscillators are modestly positive. Our Call/Put Dollar Value Flow Line (CPFL) could easily make a new short to intermediate-term high. And our Daily Most Actives Advance/Decline Line (MAAD) rallied to its best level last Friday since the November 16 intermediate-term lows and since March 2009, while Weekly MAAD also moved to its best level since March 2009.

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