New stock market highs always bring calls for more new highs

Weekly Review: MAAD & CPFL Analysis

But what we do know for a fact is that on the longer term this market has been resilient, volume and indicator detractions notwithstanding. Except for some serious intermediate-term selling from late April until July 2010 and then from May through October of 2011, the bulls have taken the field. But with all trends, bullish or bearish, there is always a price to pay when extremes begin to elicit overly optimistic prognostications for a continuation of the extant move. That is classic for an end game in a Major Cycle bull trend. Hope overcomes reason. Are we at that point now? It’s possible. But rather than trying to “top fish” this market, a very dangerous exercise, we would prefer to let price action develop as it wishes while we continue to monitor our indicators since we continue to believe it is the market that needs to prove itself, not the indicators.

McCurtain Most Actives Advance/Decline Line (MAAD)

MAAD on both Daily and Weekly Cycles rallied last Friday to best levels since March 2009. But while that strength would seem to be bullish, the fact that neither time series has been able to get anywhere near its 2007 highs, while having in fact only recovered 50% of the 2008 bear market losses, is yet another sign the levels of enthusiasm have not been equal to previous bull phases.

As we suggest in our main Market Summary, the negative divergence that has persisted between MAAD and index pricing over the past two years is the most noticeable and serious in the nearly 52 years of the data we have accumulated for the indicator. While there have been other instances when MAAD has led the market, such as prior to the 2000 highs, the current lead time is unprecedented. Obviously, the market will tell us how prescient the current negative divergence is.

McCurtain Call/Put Dollar Value Flow Line (CPFL)

CPFL bettered its April 12 intraweek short to intermediate high last Friday and moved to its best levels since December 2011. But was we have suggested before, CPFL is nowhere near overcoming the long-term resistance highs it made in February 2011.

While the positive movement of the indicator since December 2011 is bullish to the extent it has participated with pricing on the upside, the fact it has only retraced about 50% of its 2008 bear market losses is simply in keeping with the other negative divergences evident in our other key indicators. In a nutshell, while options players have bought more options contracts on a Call Dollar Value basis since December 2011, relative to puts that performance continues to look relatively weak.

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