Stock market makes possible key reversal day

Last time was Oct. 11, 2007

 

Market Snapshot for session ending 5-22-13
 

Last

Day Change

%Change

S&P 500 Index

1655.35

-13.81

-.83%

Dow Jones Industrials

15307.17

-80.41

-.52%

NASDAQ Composite

3463.29

-38.82

-1.11%

Value Line Arithmetic Index

3730.32

-53.08

-1.40%

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:

  • Sharp losses were evident in major indexes Wednesday. After reaching intraday high an hour into regular session, S&P 500 declined 31.83 points into close with net loss of 13.81. Dow 30 lost 235.23 and 80.41. Biggest loser on day was Value Line index, down 1.40%.
  • Market volume surged nearly 27%.
  • Minor, Intermediate, and Major Cycles remain positive, but “Overbought.”.
  • Wednesday’s weakness caused slight uptick in our volatility indicator based on VIX data. Indicator remains vulnerable in bearish zone.
  • To suggest negativity on short term, S&P 500 would need to sell below lower edge of 10-Day Price Channel (1632.50 through Thursday). Intermediate Cycle in S&P 500 remains positive until 1534.87 through May 24.
  • After hitting new high Tuesday, Daily MAAD was net negative Wednesday with 6 issues positive and 14 negative. Daily MAAD Ratio remains “Overbought” at 1.74.
  • Call/Put Dollar Value Flow Line (CPFL) backed off from new short to intermediate-term high Wednesday made Tuesday. CPFL Ratio remains in “Overbought” territory at 2.27.

Market Overview – What We Think:

  • All major indexes met requirements for “Key Reversal Day” Wednesday – “Prices open above the previous day’s close, make a new high and then close below the previous day’s low.”
  • Last significant KRD occurred on October 11, 2007.
  • What is significant about Wednesday’s losses is fact S&P did not decline a mere 13.81 points. Bellwether sank 31.83 points after making day high and new all-time high. Dow 30 was off net 80.41, and lost 235.23 from day’s high.
  • Market strength since April 18 short-term low could prove to be 5th, and final, “wave” of Intermediate Cycle rally begun November 16. Five waves are especially noticeable in our Daily MAAD chart with Wave 5 showing an upward “spike” in activity.
  • Uptick in volatility Wednesday after two weeks of hovering in bearish zone is consistent with topping action, as are lingering “Overbought” conditions on all cycles.
  • But Minor Cycle must turn negative to suggest threat to intermediate trend. So long as Intermediate Cycle remains intact, all near-term pullbacks must be regarded as merely corrective.

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

5/20

5/21

5/22

5/23

5/24

5/24

5/25

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.

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