Stock market finds support at trendline; new highs must follow

Weekly Review: MAAD & CPFL Analysis

Market Overview – What We Think:

  • Fact that buyers congealed enough to force prices higher in S&P 500 last Thursday just as bellwether touched defined intermediate-term uptrend stretching back to November low is bullish. But larger question now is whether or not index will have enough staying power to hold above that low (1598.23) while offering enough follow-through buying to overcome May 22 high (1687.18) and possible Key Reversal Day.
  • We think not. While some near-term stats such as an “Oversold” Minor Cycle and appearance of more positive tone in CPFL and MAAD on near-term would seem to lend more positive flavor to market, we suspect p[rice action in sessions just ahead may prove to be topping action in mature intermediate term advance begun last November 16.
  • In all likelihood, resistance toward zone of resistance toward 1650 in S&P 500 just above last week’s breakdown point will contain further reflex buying. In fact, S&P could rally to 1658.67 and upper edge of 10-Day price Channel without reversing near-term negative.
  • And while possible Key Reversal Day formed back on May 22 is not a nebulous chart formation subject to all degrees of interpretation, fact is until larger Intermediate Cycle confirms a negative reversal in price action, KRD must be termed “possible” even though its rarity and historical accuracy should be taken as a serious gesture in favor of a bearish resolution of current pricing.
  • Nonetheless, until short term trend morphs into intermediate-term reversal to negative, we must regard short term negativity as just another minor corrective phase.

Current market indecision should be resolved in one of two ways. Either strength since last Thursday’s intraday lows will prove to be a short-covering rally with little staying power beyond resistance toward 1650 in the S&P, or that intraday low will prove to be the bottom of a brief short-term pullback akin to selling from April 11 to 18. Then the S&P faded from 1597.35 to 1536.03 over about a week and within the context of a still positive Intermediate Cycle uptrend. The current short-term negative had been underway for nearly two weeks before price improvement developed last Thursday. But if last Thursday’s low was the bottom of a short-term reaction, nothing but new highs above that May 22 high would be acceptable from a long-term bullish point-of-view. Anything short of that level would be regarded as mere return action into what could prove to be an Intermediate Cycle top.

Daily S & P 500 with Cumulative Volume (CV)

Weekly S & P 500 with Cumulative Volume (CV)

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