Market Overview – What We Think:
- Sharp major index price losses and statistical market damage last week not only amplified short-term trend losses, but added evidence that May 22 KRD and intraday highs (1687.18—S&P 500) were also top of Intermediate Cycle advance begun last November 16. How intermediate-term negativity plays out will determine staying power of Major Cycle uptrend begun in March 2009.
- Fact sellers have continued to push prices lower after each upside attempt and that market remains “Overbought” on larger cycles is suggestion of larger cycle vulnerability, especially on Intermediate Cycle. Market’s inability to overcome sellers could be an indication environment has begun to shift from one of buying on weakness to selling on strength.
- Marked increase in trading volume on downside last week when converted into Cumulative Volume suggests S&P 500, S&P 500 Emini, and Dow Jones 30 should be trading lower. That is not encouraging. Last time such volume losses developed in excess of price losses was during 2008-2009 bear market.
- While some near-term stats are looking “Oversold” on Minor Cycle while CPFL and MAAD look a bit more positive on relative basis, we suspect pricing in sessions just ahead could prove to be topping action in mature intermediate term rally that is about to confirm negative reversal.
On the statistical front, our volatility indicator based on VIX data has remained steadfastly negative, and despite slight recovery for a few sessions through last Tuesday. In addition, our VIX indicator confirmed none of the rally following the April 11 through 18 short-term pullback in that it did not make new lows as prices made new highs. That failure was a suggestion the nature of market volatility was changing and that from mid-April through the May 22 highs caveat emptor was in order. Also, given the price and volume damage that has been suffered by the market over the past few weeks, there is now a bigger problem developing with volatility. Weekly data that has been positive since November 2011 following the October 2011 lows (1074.77—S&P 500) is on the verge of turning negative. Of the two components we use to determine trend verification in the VIX indicator, one is now negative with the other trailing by only inches.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)