Negative stock market technical indicator may be wrong

Weekly Review: MAAD & CPFL Analysis

 

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1663.50

+7.67

+.46%

Dow Jones Industrials

15010.51

-70.96

-.47%

NASDAQ Composite

3657.79

+55.01

+1.52%

Value Line Arithmetic Index

3897.62

+33.89

+.87%

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

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

After a week that included erroneous options trades generated by a large Wall Street firm and a technical glitch that closed the NASDAQ stock exchange for about four hours Thursday afternoon, the major indexes closed out the week somewhat mixed. The bluer chips marked by the Dow Jones Industrial Average were negative and the S&P 500 was dragging along in second place. But over in territory somewhat less blue, the NASDAQ Composite and the Value Line index posted modest gains, the former just 1% from an intraday high (3694.19) reached August 5 and its best level since March 2009. The VAY was only 2% below its August 1 all-time high (3987.82).

But there are worries on the Street. In fact, last week we received an email from a reader asking about the apparent negative divergence extant between the S&P 500, and the averages in general, our Most Actives Advance/Decline Line (MAAD), and the New York Stock Exchange Advance/Decline Line (NYAD). For good measure we’ve tossed in the NYSE Up/Down Volume Advance/Decline Line (NYUD). In the following chart the three a-d lines are plotted.

Of the three, MAAD remains intact on the Intermediate Cycle in that the indicator continues to hold above an uptrend line initiated last November 16 AND toward a new high reached August 14. Not only did MAAD demonstrate little weakness through the May/June short-term pullback, but it was last only 9 positive issues from equaling that recent new high. Weekly MAAD is also net positive with both the MAAD Daily and Weekly Ratios at or near “Neutral” (1.01 and 2.29, respectively).

Market Overview – What We Know:

  • Secondary issues appeared to be leading the pack last week with solid gains by the NASDAQ Composite and Value Line index, while the Dow 30 ended in negative territory on the week with the S&P 500 a close second.
  • Market volume declined 13.5% last week, part of that shrinkage due to several hours of slow trading on Thursday when the NASDAQ was technically inoperable.
  • To turn short-term trend positive, S&P 500 must rally above upper edge of 10-Day Price Channel (1681.87 through Monday). Intermediate Cycle turns negative with S&P selling below lower edge of 10-Week Price Channel (1627.03 through August 30).
  • Our short-term volatility indicator (VBVI) was last near “Neutral” at 50% level. At June 24 low indicator was plotted at 22%.
  • Daily MAAD was positive last Friday with 15 issues higher and 4 lower. Indicator was last just 9 positive issues from equaling its August 14 new high and best level since March 2009. MAAD has yet to decline below uptrend line begun last November and has created no negative divergences. Daily MAAD Ratio was last at 1.01 with Weekly Ratio at 1.29.
  • Weekly CPFL was negative last week by 2.30 to 1, but a strong gain last Thursday (8.7 to 1) pushed indicator upward from new short-term low made last Wednesday. Indicator remains below resistance high made June 11. Daily CPFL Ratio was last “Oversold” at .70, as was Weekly Ratio at .73.

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