Stock market getting oversold on short-term cycle

MAAD & CPFL Review

 

Market Snapshot for session ending 8-19-13
 

Last

Day Change

%Change

S&P 500 Index

1646.06

-9.77

-.59%

Dow Jones Industrials

15010.74

-70.72

-.47%

NASDAQ Composite

3589.08

-13.69

-.38%

Value Line Arithmetic Index

3828.26

-35.47

-.92%

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:

  • Further selling pushed major indexes deeper into negative territory Monday. Value Line index was biggest loser (-.92%).
  • Market volume decreased 12.7% compared to last Friday. NYSE advance/decline data was negative by 3.98 to 1 with NYSE up/down volume negative by 5.72 to 1.
  • S&P 500 must rally above upper edge of 10-Day Price Channel (1699.44 through Tuesday) to turn Minor Cycle positive. Intermediate Cycle remains positive until S&P sells below lower edge of 10-Week Price Channel (1516.90 through August 23).
  • Our VIX-based short-term volatility indicator continues to correct short-term excesses accrued since June 24 Minor Cycle lows when indicator was last in buying zone. Since August 2 S&P intraday and short-term high (1709.67), indicator has retraced about 50% of negative tone.
  • Daily MAAD was negative Monday with 3 issues higher and 16 lower. One was unchanged. Indicator was last closing in on intermediate uptrend line stretching back to November low, but no negative divergence is yet in place. Daily MAAD Ratio was “Oversold” at .79.
  • Daily CPFL was negative by 3.20 to 1 Monday and traded down to new short-term low. Indicator is 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 .51.

Market Overview – What We Think:

  • More selling Monday apparently solidified Minor Cycle negative that has been underway since early August highs (1709.67—S&P 500). We say “apparently,” because some interesting statistics are developing.
  • First, short-term “Oversold” numbers based on price are now evident in major indexes as are “Oversold” conditions based on Daily MAAD and CPFL.
  • Second, either those numbers are simply reflecting new negativity into what could be reversal of intermediate uptrend to negative, or they are preliminary to short-term low.
  • Third, fact that Daily MAAD is right at uptrend line stretching back to November 16 low suggests indicator is close to point of no return. But with Daily MAAD failing to give much ground on downside recently, let alone set up negative divergence into recent highs, that failure could be more bullish than index pricing might suggest. In other words, a short-term low could come from out of “nowhere.”
  • If MAAD continues to resist selling pressures while digging deeper into “Oversold” territory on Minor Cycle, Intermediate Cycle might still have some life left in it.
  • 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
 

8/19

8/20

8/21

8/22

8/23

8/23

8/31

S&P 500 Index

BUY 1700.21

BUY 1699.44

BUY 1698.36

BUY 1694.45

BUY 1688.14

SELL 1615.90

SELL 1422.19

Dow Jones Industrials

BUY 15553.21

BUY 15539.10

BUY 15517.22

BUY 15476.75

BUY 15406.99

SELL 14984.69

SELL 13195.39

NASDAQ Composite

BUY 3676.69

BUY 3680.14

BUY 3681.63

BUY 3671.58

BUY 3661.51

SELL 3427.01

SELL 3007.61

Value Line Index

BUY 3963.88

BUY 3962.99

BUY 3960.41

BUY 3954.79

BUY 3940.68

SELL 3702.50

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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