Stock market range-bound with slight advantage to bears

* Cycle status is based on S&P 500.

As they say in law enforcement, “The decline in equity prices since the May 22 high has been a move of interest.” That move with its coincident analysis continues. Since the May 22 intraday highs (1687.218—S&P 500) and through last Friday’s closing levels, the S&P has lost 4.7%, the Dow Jones Industrials 4.1%, the NASDAQ Composite 3.6%, and the Value Line index 2.7%. Clearly, the S&P has been the biggest loser. But is that loss prescient and preliminary to a larger decline, or is it overdone in front of a new rally?

Given that the S&P recently declined below a defined uptrend line stretching back to its November 16 low (1343.35) with the Dow Jones 30 following suit and with both confirming downside action with coincident deterioration in Cumulative Volume (CV), there is reason to presume negativity on the Intermediate Cycle. But prices in the NASDAQ Composite and Value Line index only tapped intermediate uptrend lines via recent selling with CV in the NASDAQ Composite confirming less negativity (no volume is reported in the VAY). In other words, selling since May 22 has been mostly a blue chip decline.

Market Overview – What We Know:

• Major indexes posted modest gains last week. Value Line index was biggest gainer with 1.57% advance.
• Trading volume rose slightly by 1.5% compared to previous week.
• Minor Cycle remains negative and S&P 500 must rise above upper edge of 10-Week Price Channel (1625.43 through Monday) to reverse trend to positive. Intermediate Cycle remains positive but threatened and must decline below 1599.86 (through July 5) in S&P to reverse extant trend to negative. Major Cycle remains positive and historically “Overbought.”
• Our short-term volatility indicator based on VIX data remains negative, but has backed off marginally from bullish near-term readings.
• Daily MAAD moved higher last week, remains below May 21 short-term high, and is still above an uptrend line in effect since November’s lows. Daily MAAD Ratio was last just above “Neutral” at 1.25 with Weekly MAAD Ratio modestly “Overbought” at 1.60.
• Daily CPFL rallied to new short to intermediate-term high June 11, remains below that level, and has declined below uptrend line stretching back to November lows. Daily CPFL Ratio was last “Oversold” at .68 with Weekly CPFL Ratio modestly “Overbought” at 1.45.
• Cumulative Volume (CV) in S&P Emini futures contract was last plotted at levels not seen since last January.

And while our VIX-derived volatility indicator coincided with the May highs in that it was suggesting a possible pullback on the Minor Cycle, the indicator was back into bullish territory as the S&P made an interim low (1560.33) on June 24. Overhanging potential near-term optimism, however, is the fact that a longer-term version of that indicator based on weekly data and stretching back to late 2011 has moved partially into negative territory. Of the two oscillators that determine the timing of the longer-term version, one is now negative with the other trailing by a small margin. What is significant about the longer-term VIX cycle is that the indicator made a low the week of April 12 but then refused to make new lows as the market rallied into the May highs. Since VIX acts contrarily to pricing, we suspected that divergent action could come back to haunt the market. It did and the recent decline ensued.