Market within range of estimated long-term targets

Weekly Review: MAAD & CPFL Analysis

 

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1691.75

-18.16

-1.06%

Dow Jones Industrials

15258.24

-192.85

-1.24%

NASDAQ Composite

3781.59

+6.86

+.18%

Value Line Arithmetic Index

4019.07

-6.97

-.17%

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

We’re just thinking out loud here, but what if the stock market put in place a long-term statistical high back at the late May short-term top? What would that look like, considering the fact that a “statistical high” can mean some indicators peak out and then prices move marginally higher?

What if?

First, Weekly Momentum (intermediate-term trend) did not make new highs with pricing in either the S&P 500 or the Dow Jones Industrials at the end of May. Intermediate Momentum did make new highs in the NASDAQ Composite and the Value Line index, but recently short-term Momentum made a new high in the Dow, but that move was not confirmed by the S&P, COMPX, or VALUA. At the very least, there are contradictions in Momentum, most of them occurring since the May highs.

Market Overview – What We Know:

  • Stock market adopted more negative tone last week with all of major indexes except NASDAQ Composite pulling back. Dow 30 was biggest loser, down 1.24%.
  • Overall market volume declined 29.2% compared to previous week.
  • Short-term trend in S&P 500 has become more negative and bellwether index must rally above upper edge of 10-Day Price Channel (1713.30 through Monday) to take on more positive tone. Intermediate Cycle turns lower with weakness below lower edge of 10-week Price Channel (11652.28 through October 4). Secondary indexes like NASDAQ Composite and Value Line index remain positive on both Minor and Intermediate Cycles.
  • Our short-term volatility indicator (VBVI) was last at 87% on Daily Cycle after fading from recent high at 92.4% reached September 19. Indicator was at 22% at June 24 short-term low and toward 14% at recent low. Weekly VBVI remains positive, but vulnerable at 99%.
  • Daily MAAD pulled back last week after reaching new high on September 18. Weekly MAAD was slightly lower with 9 issues positive and 11 negative. Daily MAAD Ratio was near “Neutral” at 1.05 with Weekly Ratio marginally overheated at 1.37.
  • Daily CPFL sank to new short to intermediate-term low last Friday, despite Oversold conditions in both Daily and Weekly CPFL Ratios (.68 and .47, respectively). Indicator created new short to intermediate-term high back on June 11 and remains below long-term uptrend line stretching back to October 2011.

Second, VBVI, our VIX-based volatility indicator, made a statistical low on April 12 and confirmed none of the market’s strength thereafter, including the May highs. That divergence is the first since the indicator peaked the week ending September 30, 2012 just as the market was completing basing action into an Intermediate Cycle low. Put another way, VBVI confirmed the first 78% of the rally since the fall of 2012, but none of the 22% since then.

Third, while there has been a selective correction of excesses into the most recent highs, such as in our Daily MAAD Ratio that has returned to “Neutral” levels, our price-based Trading Oscillators remain toward “Overbought” territory on the Minor Cycle. Intermediate and Major Cycle trends are also “Overbought.”

Market Overview – What We Think:

  • Corrective action in major indexes over past several sessions will either prove to be merely lull in short-term advance begun in early September, or it could prove to be end of Intermediate Cycle uptrend begun nearly a year ago last November.
  • Recent comparative strength and lack of net selling in COMPX, VALUA, and Russell 2000 could be harbinger of higher prices, just as they were prior to most recent near-term advance that was accurately predicted by Daily MAAD.
  • On flip side, any price failures and ongoing weakness in S&P and Dow 30 that have not been as enthusiastic as secondaries into recent highs could result in more bearish outcome, considering ongoing indicator negativity, some of which has persisted since May highs.
  • If new highs follow, so much the better for bullish cause. If they do not, then Intermediate Cycle in effect since November 2012 would be in jeopardy and, by extension, so would long-term trend begun in March 2009.
  • In background there is lingering potential for 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.

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