Stock market continues to perplex

* Cycle status is based on S&P 500

Note: We wrote this Market Summary Saturday afternoon. In overnight trading Sunday evening, however, the S&P 500 Emini futures contract and futures in the Dow Jones Industrials spiked higher at the opening and were threatening to make new all-time highs. NASDAQ Composite futures were positive and trading at yet another new high. If those highs hold into regular session trading Monday morning, recent new highs by MAAD prove to be prescient.

After another week of trading, and despite gains in all of the major indexes, the contradictions persist. Only the NASADQ Composite, following the lead of our Most Actives Advance/Decline Line (MAAD) indicator, hit a new high. Nonetheless, last week the weakest of the majors, the Dow Jones Industrials, rallied the most (up 3.04%). But is that strength in the Dow merely a “return action” rally into what could prove to be a relatively important Intermediate Cycle top?

At the same time, while the S&P 500 wasn’t as weak as the Dow to the extent the 500 seriously flirted with Intermediate Cycle negativity into the recent short-term lows (1627.47 on August 28), the S&P remains in a sort of no-man’s land to the extent it is now holding just above its 10-Week Price Channel while also teasing the upper edge of the Channel at a point coincident with “Overbought” short-term conditions and near-term statistical resistance. In the background the Value Line index and the Russell 2000 remain above intermediate Price Channel support while poised to make new highs. But is time is running out for all of the majors on the Minor Cycle?

Market Overview – What We Know:

• Major indexes gained again last week. Dow 30 rallied most at 3.07%. NASDAQ Composite rallied to new high, but was sole performer in that respect.
• Market volume rose nearly 21%, but change was primarily a function of fact market experienced truncated week due to Labor Day holiday.
• S&P 500 remains positive on Minor Cycle and must sell below lower edge of 10-Day Price Channel (1641.48 through Monday) to suggest new negative. Intermediate Cycle turns lower with weakness below lower edge of 10-week Price Channel (1653.49 through September 20).
• Our short-term volatility indicator (VBVI) was last near 79%, up nearly 46 percentage points on week. Indicator was at 22% at June 24 short-term low and nearly 14% at recent low. Weekly VBVI remains positive.
• Daily MAAD rallied to new high last Wednesday before backing off final two sessions. Weekly MAAD hit new high and best level since March 2009 last week. On week, 18 issues were positive while 2 were negative. Daily MAAD Ratio was “Overbought” at 1.97 with Weekly Ratio moderately overheated at 1.46.
• CPFL continues to languish with indicator resting at long-term uptrend line stretching back to October 2011. Indicator is also “Oversold” on both Daily and Weekly cycles.

Statistically, we now see all indexes “Overbought” based on price along with Daily MAAD that is in the upper ranges of overheated territory. And our VIX-based volatility indicator (VBVI) was last at nearly 79% after recovering from nearly 14% into the recent lows. At the August highs VBVUI was plotted at nearly 86%. While current readings are not an indication the market is necessarily at a short-term high, the only index that has been able to make a new high is the NASDAQ Composite. If a short-term top in all of the other indexes occurs this side of the August highs into a time of the year that historically has had its share of problems, the yellow flag of caution could be warranted.