Stock market defies gravity on E-mini S&P 500 spike higher

* Cycle status is based on S&P 500.

Market Overview – What We Know:

• Major indexes were mixed Wednesday with NASDAQ Composite and Value Line index rallying to new highs, but in regular session trading S&P 500 and S&P Emini did not. In overnight trading, however, S&P Emini had rallied to new all time high relative to its closing high of 1659.50 on May 21, but on an intraday basis must get above 1679.75.
• Daily market volume declined 3.4% Wednesday.
• Short-term trend is positive and S&P 500 needs to sell below lower edge of 10-Day Price Channel (1598.57 through Thursday) to suggest reversal to negative. Intermediate Cycle remains positive until S&P declines below lower edge of 10-Week Price Channel (1602.90 through July 12).
• Our short-term volatility indicator based on VIX data remains in a zone of vulnerability.
• Daily MAAD was slightly lower Wednesday with 9 issues positive and 11 negative. Indicator was resting just below new high made Tuesday and was also “Overbought” at 1.63.
• Daily CPFL data was slightly positive by 1.41 to 1 Wednesday and remains below new short to intermediate-term high reached June 11. Indicator also continues to hold below uptrend line stretching back to November lows. Daily CPFL Ratio was last just above “Neutral” at 1.08.
• Cumulative Volume (CV) in S&P 500 and S&P 500 continue to under perform pricing.

Market Overview – What We Think:

• In one of those rare instances where what seemed like a “sure thing” in that none of the major indexes would have the power to make new highs, on Tuesday NASDAQ Composite, Value Line index, and Daily Most Actives Advance/Decline Line (MAAD) rallied to their best levels since March 2009. But S&P 500 and Dow 30 continued to lag. Strength in S&P Emini in overnight trading Wednesday put more holes in short-term top scenario, let alone suggestion May 22 highs were an endgame of rally begun last November.
• But there is no denying that short-term trend is once again “Overbought” and our short-term VIX-based volatility indicator continues to flirt with negative territory to same extent indicator pre-dated market top back on May 22. As a consequence, it remains to be seen whether or not selective new highs are reflecting misplaced enthusiasm or a resumption of long-term advance on both Intermediate and Major Cycles.
• Measurements from June 24 short-term low suggest short-term measured move targets of 1670.85—S&P 500 and 1661.25—S&P 500 Emini.

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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About the Author

Robert McCurtain is a technical analyst/market timer, private investor and financial markets consultant based in New York City. He can be reached at traderbob@nyc.rr.com.

If you would like to read more about how the CPFL is constructed, read a Futures article on the concept. This link will take you to the MAAD article. A two-part series about system development with the MAAD also is available.