At final market top, this stock bull trend will be like all others

Weekly Review: MAAD & CPFL Report

There has also been a lot of bullish talk recently. We’ve heard assertions about a “new secular bull market,” that new paradigm thing, and continue to read stories about investors who finally decided that now is the time to get back into the market. We remain perplexed as to why “now” is the time and why it’s better than say March 2009, but who knows? Those folks could be vindicated on the “long-term.” But lest we be accused of a contradiction by suggesting that “investing for the long-term” will always forgive a dumb mistake, it’s important to note that after the 1929 crash when the Dow Jones Industrial Average lost nearly 90% of its value it took 25 years to break even. Unless living forever is included in an investor’s investment strategy, we think the holding time for a security should be a factor.

Daily S & P 500 Emini Futures contract with Cumulative Volume (CV)

Weekly S & P 500 Emini Futures contract with Cumulative Volume (CV)

In that latter vein, we believe the best strategy is to scale into what we suspect could be a new bull trend and then to scale out when the bear begins to waggle his tail. Indicators can help define “market tone.” If we know, as is the case currently, that our indicators are “skeptical,” we continue to focus more closely on price action. We know the Minor Cycle will capitulate first, then the Intermediate, and finally the Major. We use those three cycles to scale out of the market. Our average price exit is lower than the ultimate top, but our objective is ALWAYS to extract profit from a larger portion of the trend.

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

5/20

5/21

5/22

5/23

5/24

5/24

5/31

S&P 500 Index

SELL 1616.06

SELL 1620.82

SELL 1627.08

SELL 1632.50

SELL 1637.43

SELL 1534.87

SELL 1360.47

Dow Jones Industrials

SELL 14972.05

SELL 15006.03

SELL 15049.20

SELL 15090.85

SELL 15126.58

SELL 14333.98

SELL 12701.94

NASDAQ Composite

SELL 3389.29

SELL 3402.60

SELL 3415.63

SELL 3427.63

SELL 3438.76

SELL 3181.00

SELL 2896.99

Value Line Index

SELL 3634.16

SELL 3648.04

SELL 3665.72

SELL 3679.73

SELL 3693.86

SELL 3437.79

 

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.

So where will this bull trend end? A couple of months ago we suggested a top toward 1616 in the S&P at a point where there the trendline connecting the 2000 and 2007 highs intersects. Since that target has been marginally surpassed we recalculated new upside goals. Using measured move data from the March 2009 S&P 500 intra month low (666.79), we calculated a new upside target toward S&P 1775. Using Major Cycle Momentum that peaked in April 2010, a number toward 1770 comes into view. Calculations from the October 2011 lows yielded a price toward 1760 and on the Minor Cycle following the April 18 S&P low, a near-term target toward 1730 is visible. Bottom-line? It’s likely this market could continue to work higher, as it continues to surprise and confound. But when the final high does occur, it will be no surprise, in retrospect. That’s classic.

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