S&P 500, Nasdaq to new highs, but volume shrinks

* Cycle status is based on S&P 500.

Market Overview – What We Know:

• S&P 500 and NASDAQ Composite rallied to best closing levels since March 2009 Monday, but S&P did not better its intraday high (1597.35) hit back on April 11. Dow Jones Industrial Average and Value Line index did not make new highs Monday.
• Market volume declined by 8.4% compared to last Friday’s levels.
• All cycles are now positive, including Minor, Intermediate, and Major.
• S&P 500 must close below lower edge of trailing 10-Day Price Channel (1551.64 through Tuesday) to suggest new short-term negative. Intermediate Cycle in S&P 500 remains positive until 1521.53 through May 3.
• Short-term volatility is trending positive again.
• Daily MAAD rallied to new short to intermediate-term high Monday and best levels since last November 16 at intermediate lows and also since March 2009. Indicator was positive by 16 to 3. Daily MAAD Ratio was moderately “Overbought” at 1.54.
• Daily CPFL was positive Monday by 1.15 to 1, but remains below new short to intermediate high reached April 12. Daily CPFL Ratio was marginally “Overbought” at 1.22.
• Cumulative Volume (CV) in S&P 500 and S&P 500 Emini did not hit new highs with S&P 500 and has only retraced about 50% of its losses since April 11.

Market Overview – What We Think:

• Re-assertion of Intermediate Cycle uptrend Monday with new highs in S&P 500 and NASDAQ Composite, gave appearance of more bullish business as usual, but lacking Cumulative Volume (CV) on upside, there is now negative divergence extant between price and volume to suggest strength since April 18 lows was fueled by weaker hands, selective new highs notwithstanding..
• Also, despite strength over past several days, short-term Momentum remains negative in S&P 500, Dow 30, and VAY. Only Momentum in NASDAQ Composite was fractionally positive Monday.
• How Minor Cycle plays out will determine staying power of larger Intermediate Cycle that has been underway since November 16, a trend that is “Overbought” and historically mature.
• Until larger Intermediate Cycle is terminated, we must regard all short-term pullbacks as merely corrections in larger cycle trend. Recent pullback is no exception.

Note: Stop levels, a function of the extant trend, are based on the trailing moving average price channels for the Highs or the Lows of an index. Whether or not a specific index is suggesting a “Buy” or Sell” is determined by whether or not index prices are above or below the current channel Stop levels. Stop levels should only be used as an entry or exit guide and in conjunction with other market entry and exit strategies.

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About the Author

Robert McCurtain is a technical analyst/market timer, private investor and financial markets consultant based in New York City. He can be reached at traderbob@nyc.rr.com.

If you would like to read more about how the CPFL is constructed, read a Futures article on the concept. This link will take you to the MAAD article. A two-part series about system development with the MAAD also is available.