Market Overview – What We Think:
- Cumulative Volume (CV) negativity was eliminated last week with new short to intermediate-term highs in S&P 500 and S&P Emini, but relative to May 2011 highs and even October 2007 highs, ongoing weakness of CV underscores fact market has been rallying on diminishing volume. Is that long-term bearish? We think it is.
- There is also fact that Intermediate Cycle uptrend like its Major Cycle counterpart is “Overbought” and mature by any historical standard even though “Overbought” conditions can persist in bull trends
- While staying power of short-term trend will determine longevity of larger intermediate trend and possibly Major Cycle underway since March 2009, until short-term decisively reverses larger Intermediate Cycle positive, we must regard all near-term negativity as just another corrective phase in larger cycles.
- 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.
But we do know that a Minor Cycle reversal will follow a short-term high that will prove to be the top of not only the Minor Cycle, but also of the Intermediate Cycle, and of the Major Cycle that has been underway since March 2009. Those are absolute certainties. No amount of hope will change those eventual realities, nor will all of the talking head prognostications or Internet chat. When that final smallest Minor Cycle peaks and turns negative, pricing will decline below the lower edge of the 10-Day Price Channel. “Overbought” short-term oscillators will head lower. Short-term Momentum will turn negative. Our measurement of short-term Volatility based on VIX will begin to move higher, a negative omen. Cumulative Volume will confirm on the downside and our indicators such as MAAD and CPFL both in terms of flow lines and Ratios will head south.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)
Because that short-term trend will prove to be the absolute high of all cycles, it will then threaten the intermediate trend at the lower edge of its 10-Week Price Channel. Intermediate Cycle “Overbought” conditions will begin correcting lower as will all of our intermediate-term indicators that will move into negative territory. At that point, and providing the Intermediate Cycle remains under pressure, all short-term rallies should be used to sell. Investors looking for new opportunities to “go long” the market at this point will be betting against the tide because the next shoe to fall will be negativity on the Major Cycle that to date has only experienced four pullbacks of importance on the Intermediate Cycle (April 30-July10, 2010; May 6-October 7, 2011; April 6-June 8, 2012; and September 14-November 16, 2012). In other words, the next short to intermediate-term high could prove to be the peak of the Major Cycle.