New stock market highs always bring calls for more new highs

Weekly Review: MAAD & CPFL Analysis

 

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1614.42

+32.18

+2.03%

Dow Jones Industrials

14973.96

+261.41

+1.77%

NASDAQ Composite

3378.63

+99.37

+3.03%

Value Line Arithmetic Index

3613.74

+80.72

+2.28%

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

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.

In the wake of a catastrophic bear market which saw the S&P 500 lose nearly 58% of its value following a high in October 2007, a new bull market was begun March 6, 2009. Since then that same S&P 500 has rallied a little over 142% through last Friday’s close, which was a new all-time high in the S&P with coincident strength to new highs in the Dow Jones Industrial Average and the Value Line index. The NASDAQ Composite index also made a new high for the move since 2009, but has yet to exceed its March 2000 all-time high (5132.52).

Given recent market strength, some prognosticators have begun suggesting the stock market has entered into a new, secular bull market that could persist for years to come. Could be. Maybe it really is different this time. Maybe all that oil shale and natural gas production will result in a modern day gold rush that will propel the stock market and the economy dramatically higher with a coincident decline in unemployment and federal debt. Sure would be nice to see the United States less dependent on unfriendly others for its energy needs. But this is where that annoying old conundrum kicks in -- again. That’s the one where we distinguish between what we “Know” and what we “Think” and where the what we ‘Hope” part is left to those more adept with Ouija boards.

What we currently “Know” about the long-term stature of this market is that it is into its 50th month. That’s mature for any bull trend, historically. There have been exceptions such as the last leg of the Super Bull begun in 1974 that lasted from December 1994 until March 2000. If the current phase similarly played out, this rally might only be four years into a six year move. Or not. That’s fodder for the talking heads.

Market Overview – What We Know:

  • Major indexes rallied to new highs last week and best levels since March 2009. Only NASDAQ Composite has yet to better its 2000 peak.
  • All cycles are positive, but short-term volatility has moved back into zone of vulnerability.
  • Market volume increased nearly 3% compared to previous week.
  • After re-asserting short-term positive flavor, S&P 500 must decline below lower edge of 10-Day Price Channel (1567.36 through Monday) to suggest near-term negative. Intermediate trend remains positive until lower edge of 10-Week Price Channel (1526.66 through May 10).
  • 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 last Friday. 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.
  • In spite of new highs in S&P 500 and S&P Emini last week, CV was barely able to eke out new high in S&P and did not confirm new high on upside in Emini.

What is relevant is that from March 2009 until May 2011 ALL of our key indicators were in synch on the upside with pricing. But following the pullback in the spring of 2011 and the resumption of the Major Cycle uptrend NONE of those same indicators has been able to exceed its 2011 highs. That divergence is exceptional. In the 50-plus years of data we have collected for the Most Actives Advance/Decline Line (MAAD), we have NEVER seen such a large exception between pricing and MAAD. Yes, it’s true MAAD recently rallied to its best levels since March 2009 on both the Daily and Weekly Cycles, but neither series has gotten anywhere near its 2007 bull market highs, let alone the all-time MAAD highs reached prior to the 2000 market peak. Cumulative Volume (CV) and our Call/Put Dollar Value Flow Line (CPFL) have been reflecting similar long-term discrepancies.

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