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

Weekly Review: MAAD & CPFL Report

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1667.47

+33.77

+2.06%

Dow Jones Industrials

15354.40

+235.91

+1.56%

NASDAQ Composite

3498.97

+62.39

+1.81%

Value Line Arithmetic Index

3765.48

+73.72

+1.99%

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.

There’s nothing quite like a powerful market rally, a “roaring bull” if you like euphemisms, to create high anxiety in investors. An email we received last week underscored that notion – “When do I sell?” There’s also the flip side of that worry with, “Is it too late to get in?” Unfortunately, more than four years into an increasingly mature bull trend we are ill-prepared to answer that latter question unless we have a weapon for personal safety close at hand, but we do have some thoughts on the former.

Assume an investor bought stocks relatively early in a bull market because he believed prices were going higher. Having learned the hard way that the vagaries of earnings reports, the quality of company management and product demand might not be predictive enough to protect him from a new bear market, he simply chose upwardly trending prices as a measurement of success.

Easier said than done? Oh yes. But there are some nuggets of truth that do not change. Exiting the market in one fear-driven lump could prove to be prescient if the departure coincides with the bull market top. If wrong, each higher quote in the S&P would be a taunt.

Market Overview – What We Know:

  • Major indexes rallied to multiple new highs last week. While NASDAQ Composite has gained nearly 176% since March 2009 low, index has yet to better 2000 high at 5132.52.
  • All cycles (Minor, Intermediate, and Major) remain positive and “Overbought” historically.
  • Market volume increased by 7.5% on week.
  • Our short-term volatility indicator based on VIX data remains in zone that has historically preceded short-term top.
  • To suggest new Minor Cycle negative, S&P 500 must decline below lower edge of 10-Day Price Channel (1616.06 through Monday). Intermediate trend remains positive until lower edge of 10-Week Price Channel (1534.87 through May 24).
  • Daily and Weekly MAAD again rallied to best levels since March 2009 last week, but both data streams remain below 2007 highs after recovering only about 60% of decline since then, and despite new highs by S&P 500, Dow 30, and Value Line index. Weekly MAAD Ratio was moderately “Overbought” at 1.74.
  • CPFL on both Daily and Weekly cycles rallied to new short to intermediate-term highs last week, but indicator remains well below major resistance high made week of February 25, 2011. Weekly CPFL Ratio was “Overbought” at 2.28.
  • Cumulative Volume (CV) in S&P 500 and S&P Emini made new highs for rally since November 16 last week, but on long-term basis both have underperformed S&P pricing. S&P Emini CV is most noticeably weakest and has only returned to breakdown levels created in early summer of 2011 following May 2011 highs.

Or an investor sells too late. In this instance by “too” late, we mean the market has already entered into a defined downtrend and the tardy player wishes he had sold earlier. Decision-making has fallen into the “coulda, shoulda, woulda” camp.

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