Market red ink surfaces, but blue chips still biggest losers

MAAD & CPFL Review

 

Market Snapshot for session ending 8-14-13
 

Last

Day Change

%Change

S&P 500 Index

1685.39

-8.77

-.52%

Dow Jones Industrials

15337.66

-113.34

-.73%

NASDAQ Composite

3669.27

-15.16

-.41%

Value Line Arithmetic Index

3936.89

-15.92

-.40%

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

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.

Market Overview – What We Know:

  • Red ink surfaced in stock market Wednesday. Dow 30 was biggest loser on day (.73%). Blue chip index remains under influence of new Minor Cycle negative with S&P 500 in close second place. NASDAQ Composite and Value Line index remain positive, near-term, with COMPX close to recent highs.
  • Market volume was down 1.8% on day. NYSE advance/decline data and NYSE up/down volume were negative by 2.15 and 1.57, respectively.
  • To assume more favorable tone on Minor Cycle, S&P 500 must rally above upper edge of 10-Day Price Channel (1702.09 through Thursday). Intermediate Cycle remains positive until S&P sells below lower edge of 10-Week Price Channel (1604.48 through August 16).
  • Our VIX-based short-term volatility indicator has begun to back off from extremely negative levels.
  • Daily MAAD rallied to new high Wednesday and best level since March 2009. Eleven issues were positive and 9 were negative. Daily MAAD Ratio was marginally “Overbought” at 1.300.
  • Daily CPFL was slightly negative Wednesday, remains below new short to intermediate-term high made June 11, and uptrend line stretching back to November lows. Daily CPFL Ratio was “Oversold” at .67.
  • Cumulative Volume (CV) made new high in S&P 500 August 1, but has yet to confirm strength in S&P 500 Emini futures contract and Dow 30 relative to pricing in short-term advance begun June 24.

Market Overview – What We Think:

  • While its true selling Wednesday pushed Dow 30 a bit deeper into negative territory with S&P 500 threatening on downside, reluctance of NASDAQ Composite to give much ground makes us wonder about bluer chip weakness.
  • When added to fact Daily MAAD eked out new long-term high Wednesday with indicator remaining in uptrend since last November with no negative divergences yet evident, bearish case is just that more difficult to accept.
  • Until we see COMPX and VAY get in step with weaker Dow and S&P, market contradictions will persist.
  • Until then, two possibilities remain. First, Dow and S&P are leading on downside on Minor Cycle and COMPX and VAY will soon follow. Or, COMPX and VAY will ultimately drag Dow 30 and S&P 500 higher. Strength in MAAD that is based on Composite market data underscores that possibility.
  • But to seriously threaten Intermediate Cycle positive in effect since last November 16, we must first see Minor Cycle turn negative with near-term weakness developing that would then threaten lower edge of 10-Week Price Channels in ALL indexes.
  • In background, there is potential for developing problems on larger cycles in that fall period has historically been backdrop for some of worst declines in stock market history. Think October 1929, October 1987, and October 2007.

Index Price Channel Stops (10-Bar MAs of Highs/Lows ) Weekly Monthly
 

8/12

8/13

8/14

8/15

8/16

8/16

8/31

S&P 500 Index

SELL 1690.11

BUY 1702.72

BUY 1701.93

BUY 1702.09

BUY 1701.94

SELL 1604.48

SELL 1422.19

Dow Jones Industrials

BUY 15512.17

BUY 15507.27

BUY 15494.27

BUY 15482.05

BUY 15457.43

SELL 14896.81

SELL 13195.39

NASDAQ Composite

SELL 3632.37

SELL 3639.88

SELL 3642.14

SELL 3642.22

SELL 3649.04

SELL 3393.80

SELL 3007.61

Value Line Index

SELL 3926.39

SELL 3930.76

SELL 3930.23

SELL 3930.88

SELL 3932.12

SELL 3663.03

SELL 3107.83

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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