Stock indexes to new highs, but volatility fails at new low

MAAD & CPFL Review


Market Snapshot for session ending 5-14-13


Day Change


S&P 500 Index




Dow Jones Industrials




NASDAQ Composite




Value Line Arithmetic Index




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.

Market Overview – What We Know:

  • Major indexes rallied to new highs Tuesday. Value Line index was biggest gainer, up 1.19%.
  • Market volume increased by more than 13%.
  • All Cycles (Minor, Intermediate, and Major) remain positive and historically “Overbought.”.
  • Short-term volatility continues to work into zone suggestive of price vulnerability.
  • If S&P 500 sells below lower edge of 10-Day Price Channel (1601.89 through Wednesday) short-term trend would likely reverse to negative. Intermediate Cycle in S&P 500 remains positive until 1532.39 through May 17.
  • Daily MAAD rallied to another short to intermediate-term high Tuesday and its best level since March 2009. Thirteen issues were positive and 6 were negative. One was unchanged. Daily MAAD Ratio was “Overbought” at 2.21.
  • Call/Put Dollar Value Flow Line (CPFL) rallied to another short to intermediate high Tuesday and CPFL Ratio moved higher into “Overbought” territory at 2.21.
  • Cumulative Volume (CV) hit new highs in S&P 500, S&P Emini, Dow 30, and NASDAQ Composite to underscore positive flavor of uptrend. Relative to pricing, however, CV has been less enthusiastic than price action since April 18 short-term lows.

Market Overview – What We Think:

  • New highs in face of “Overbought” conditions on all cycles simply underscore power of trend.
  • Nonetheless, market has begun to look “spikey” on upside to suggest staying power of Minor Cycle positive could be limited.
  • Interestingly, despite new highs in index pricing our Minor Cycle volatility measurements based on VIX data have not hit new lows. Since pricing and volatility operate inversely, current short-term strength could prove to be “blow-off” and final phase of Intermediate Cycle begun last November 16. Current variance between price and volatility is first since Intermediate Cycle rally began nearly six months ago.
  • How Minor Cycle plays out will determine staying power of larger Intermediate Cycle that has been underway since November 16. So long as that Intermediate Cycle positive remains intact, all near-term pullbacks must be regarded as merely corrective.


Index Price Channel Stops (10-Bar MAs of Highs/Lows ) Weekly Monthly








S&P 500 Index

SELL 1589.88

SELL 1595.82

SELL 1601.89

SELL 1607.17

SELL 1611.75

SELL 1532.39

SELL 1360.47

Dow Jones Industrials

SELL 14761.90

SELL 14807.54

SELL 14855.27

SELL 14901.09

SELL 14938.39

SELL 14280.35

SELL 12701.94

NASDAQ Composite

SELL 3319.46

SELL 3334.44

SELL 3348.48

SELL 3362.55

SELL 3375.85

SELL 3183.98

SELL 2896.99

Value Line Index

SELL 3555.02

SELL 3571.40

SELL 3588.37

SELL 3604.54

SELL 3619.32

SELL 3442.43

SELL 2895.29

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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