Dow, S&P 500 take hit on week; minor cycle looks negative

Weekly Review: MAAD & CPFL Analysis

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1630.74

-18.86

-1.14%

Dow Jones Industrials

15115.57

-187.53

-1.22%

NASDAQ Composite

3455.91

-3.23

-.09%

Value Line Arithmetic Index

3719.72

-7.71

-.20%

Minor Cycle* (Short-term trend lasting days to a few weeks) Neutral / Negative

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.

One of the reasons we prefer using S&P Emini futures data when constructing near-term trend lines is that there is simply more data to work with. While the cash S&P provides 6 ½ hours of data from 9:30 am until 4:00 pm Monday through Friday, the Emini offers nearly 24 hours of data beginning at 6:00 pm Sunday evening through the close Friday afternoon. Or, 32.5 hours of data vs. nearly 120.

A case in point is the setup prior to last Friday’s sharp market decline (see two charts of S&P 500 and S&P Emini data below). On the 15-minute Emini bar chart the contract created four points of intraday support including May 23 at 4:45 am, May 24 at 10:15 am, May 29 at 11:15 am, and May 31 at 6:00 am. The S&P 500 had only three points of contact including May 23 at 9:45 am, May 14 at 10:15 am, and May 31 at 11:15 am. There were only two points of coincidence on May 24 and 29 when the two markets were open at the same time. Thus, in our opinion, the Emini had greater chart validity because more data was available to analyze.

Those four points of intraday support in the Emini were connected with a perfectly drawn trendline across the bottom of each support point. The trendline in the S&P cash chart was less precise and lacked the fourth point of contact. Moreover, when the market broke lower Friday afternoon, it fractured not only the defined trendline in the Emini, but also declined below the most recent support point created May 31 at 06:00 when S&P cash was not traded.

Although it’s true S&P Emini volume in overnight trading is only a fraction of the activity during the regular session, it’s also likely overnight traders are demonstrating interest in specific price levels regardless of volume. As a consequence, we believe overnight pricing, when combined with regular session trading, provides a clearer picture of market activity over a 24-hour period.

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