Stock market bounces, volume shrinks, near-term trend still negative

MAAD & CPFL Review

 

Market Snapshot for session ending 8-28-13
 

Last

Day Change

%Change

S&P 500 Index

1634.96

+4.48

+.27%

Dow Jones Industrials

14824.51

+48.38

+.33%

NASDAQ Composite

3593.34

+14.82

+.41%

Value Line Arithmetic Index

3821.37

+9.49

+.25%

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

Intermediate Cycle* (Medium trend lasting weeks to several months) 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:

  • Marginal buying Wednesday in major indexes resulted in some recovery of Tuesday’s sharp losses, but Minor Cycle nonetheless remains negative. NYSE advances/declines were positive by 1.15 to 1 with NYSE up/down volume positive by 1.23 to 1.
  • Market volume declined 15.5%.
  • S&P 500 must rally above upper edge of 10-Day Price Channel (1667.79 through Thursday) to turn Minor Cycle positive. Intermediate Cycle remains positive until S&P sells below lower edge of 10-Week Price Channel (1627.03 through August 30).
  • Our VIX-based short-term volatility indicator continues to correct Minor Cycle excesses accrued from June 24 lows (22%) through early August highs (98.3%). Indicator was last at 25%.
  • Daily MAAD was positive Wednesday by 15 to 4. For first time since last November indicator sank below its Intermediate Cycle uptrend line Tuesday to new short-term low. Wednesday’s marginal recovery did not appreciably change MAAD’s current position. Daily MAAD Ratio was “Oversold” at .70.
  • Daily CPFL was deeply negative by 9.1 to 1 Wednesday and dipped to new short-term low. Most recent high was made June 24. Indicator remains below uptrend line stretching back to November lows. Daily CPFL Ratio was “Oversold” at .57.

Market Overview – What We Think:

  • Wednesday’s buying lifted major indexes up from new short-term lows reached Tuesday, but market internals were less than stellar, as was case with CPFL data that, with 9.1 to 1 negative, was not exactly a vote of confidence for a continuation of rally.
  • Admittedly, however, with price and indicator “Oversold” conditions nonetheless evident, we cannot rule out possibility a short-term low may not be far off. What can be an issue early in trend change if larger Intermediate Cycle is simply worn out, is fact that “Oversold” conditions can persist and are merely a measurement of new larger cycle negative.
  • In other words, if short-term “Oversold” conditions do not “bite” to extent they spur more buying, more selling could simply extend near-term losses while putting larger Intermediate Cycle in jeopardy.
  • Given fact Dow has already dipped below lower edge of 10-Week Price Channel to signal intermediate weakness, we suspect odds are good months-long intermediate-term advance may be over. If so, what could now become an issue is staying power of long-term trend begun in March 2009.
  • In background there is lingering 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
 

8/26

8/27

8/28

8/29

8/30

8/30

8/31

S&P 500 Index

BUY 1681.87

BUY 1676.45

BUY 1671.54

BUY 1667.79

BUY 1665.75

SELL 1627.03

SELL 1422.19

Dow Jones Industrials

BUY 15340.58

BUY 15278.43

BUY 15215.94

BUY 15156.92

BUY 15114.85

SELL 15062.62

SELL 13195.39

NASDAQ Composite

BUY 3653.04

BUY 3646.18

BUY 3641.40

BUY 3638.86

BUY 3640.89

SELL 3455.72

SELL 3007.61

Value Line Index

BUY 3928.38

BUY 3916.77

BUY 3906.77

BUY 3900.98

BUY 3897.76

SELL 3740.46

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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