Stock market minor cycle clearly bearish; intermediate next?

MAAD & CPFL Review

 

Market Snapshot for session ending 8-15-13
 

Last

Day Change

%Change

S&P 500 Index

1661.32

-24.07

-1.43%

Dow Jones Industrials

15112.19

-225.47

-1.47%

NASDAQ Composite

3606.11

-63.15

-1.72%

Value Line Arithmetic Index

3874.67

-62.21

-1.58%

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

Intermediate Cycle* (Medium trend lasting weeks to several months) Positive / Neutral

Major Cycle* (Long-term trend lasting several months to years) Positive

* Cycle status is based on S&P 500.

Market Overview – What We Know:

  • Sharp losses across board in stock market Thursday pushed bids in blue chip S&P 500 and Dow 30 lower and pulled NASDAQ Composite and Value Line index into short-term negative territory.
  • Market volume increased by 14.2%. NYSE advance/decline data and NYSE up/down volume were negative by 5.8 and 3.20 to 1, respectively.
  • With S&P 500 now negative on Minor Cycle, to turn bellwether positive 500 must rally above upper edge of 10-Day Price Channel (1701.94 through Friday). 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 backed off from extremely negative levels, but is still suggesting potential for market vulnerability.
  • Daily MAAD was negative by 4 to 1 Thursday, but has yet to signal any negative divergences while remaining in uptrend established last November while holding below new high made August 14. Indicator was last “Neutral” at 1.06.
  • Daily CPFL was negative by 1.72 to 1 Thursday and broke below short-term support low created June 24. Most recent high was made June 24. Indicator remains below uptrend line stretching back to November lows. Daily CPFL Ratio was “Oversold” at .64.

Market Overview – What We Think:

  • Thursday’s selling in major indexes eliminated indecision relative to short-term trend while bringing NASDAQ Composite and Value Line index in line with recently weak S&P 500 and Dow 30.
  • COMPX and VAY remain stronger than SPX and DOW, but strength at this point may prove to be academic if more near-term weakness develops since what will then hang in balance is staying power of larger Intermediate Cycle that has been underway since last November 16.
  • What is a puzzle, however, is failure of Daily MAAD to either give much ground on downside, let alone set up negative divergence into recent highs. More time will be required to gain definition there. If MAAD continues to resist selling pressures while digging deeper into “Oversold” territory on Minor Cycle, we could presume recent selling might be short-lived.
  • 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

BUY 3675.45

SELL 3393.80

SELL 3007.61

Value Line Index

SELL 3926.39

SELL 3930.76

SELL 3930.23

SELL 3930.88

BUY 3964.72

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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