S&P and Dow under water on minor cycle seeking company

* Cycle status is based on S&P 500.

Market Overview – What We Know:

• Weakness in futures contracts Sunday evening spilled over into Monday’s session when all of major indexes ultimately finished in red. Prices ultimately improved from Sunday’s opening levels, however.
• Market volume increased 18% on general weakness.
• Short-term trend has taken on negative tone in S&P 500 via weakness below lower edge of 10-Day Price Channel. To create favorable tone in S&P, bellwether must rally above upper edge of Price Channel (1713.63 through Tuesday). Intermediate Cycle remains positive so long as pricing holds above lower edge of 10-Week Price Channel (1652.28 through October 4).
• Our VIX-based short-term volatility indicator, VBVI, worked lower Monday to 78.5% from Friday’s level at 87%. Into September 19 short-term high VBVI was at 92.4%.
• Daily MAAD was negative by 5 to 15 Monday. Indicator’s most recent high, and best level since March 2009, was made September 19. MAAD remains above uptrend line stretching back to last November’s lows. Daily MAAD Ratio was last slightly “Oversold” at .90.
• Daily CPFL dipped to another short-term low Monday via negative readings of 1.86 to 1. Plot was lowest since last February when S&P 500 was quoted near 1500. Indicator is now below long-term uptrend line stretching back to October 2011. CPFL Daily Ratio was last in the upper reaches of “Oversold” territory at .67.

Market Overview – What We Think:

• More net selling Monday after weak opening in futures contracts Sunday night simply exacerbated already weak short-term trend. Negativity in S&P and Dow 30 is not promising since COMPX and VALUA are also now compromised, near –term.
• But Daily MAAD has yet to give up ghost with weakness below uptrend line stretching back to last November’s lows. Admittedly, all indexes have also yet to fracture coincident uptrend lines.
• With market now locked between recent highs (1729.86—intraday high S&P 500 on September 19) and what will ultimately prove to be short-term low, point then will become market’s ability to make new highs, or not, and how key indicators like MAAD will respond.
• Since no negative divergence is yet evident in Daily MAAD, market tone is tipped slightly in favor of bulls. But any weakness in MAAD below months-old uptrend line would dampen bullish cause, negative divergences or not.
• Ongoing CPFL weakness suggests options crowd still views market with skepticism and has been buying more puts on Dollar Value basis than calls since indicator peaked June 11. That negativity created first negative divergence in CPFL vs. S&P since last November. Negative tone of options buying could continue to weigh on market.

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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About the Author

Robert McCurtain is a technical analyst/market timer, private investor and financial markets consultant based in New York City. He can be reached at traderbob@nyc.rr.com.

If you would like to read more about how the CPFL is constructed, read a Futures article on the concept. This link will take you to the MAAD article. A two-part series about system development with the MAAD also is available.