Weak Dow threatens first support, as secondaries are hammered

MAAD & CPFL Review

 

Market Snapshot for session ending 10-08-13
 

Last

Day Change

%Change

S&P 500 Index

1655.45

--20.67

-1.23%

Dow Jones Industrials

14776.53

-159.71

-1.07%

NASDAQ Composite

3694.83

-74.54

-2.00%

Value Line Index

3931.22

-57.61

-1.43%

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:

  • Sharp losses and a continuation of short-term selling plagued equities Tuesday. While secondaries as measured by NASDAQ Composite, Value Line index, and Russell 2000 were biggest losers, Dow 30 came within hair of breaking below key August 27 closing level support (14776.13).
  • Market volume rose sharply by 37% Tuesday.
  • S&P 500 remains negative on Minor Cycle and must rally above upper edge of 10-Day Price Channel (1699.11 through Wednesday). Intermediate Cycle remains positive so long as S&P holds above lower edge of 10-Week Price Channel (1650.48 through October 11).
  • Our VIX-based short-term volatility indicator, VBVI, continues to correct lower in wake of excesses developed into mid-September short-term highs. Indicator was at 26.4% Tuesday and down from Monday’s 36.8%. Into September 19 short-term high VBVI was at 92.4%.
  • Daily MAAD was negative Tuesday by 1 to 19, but indicator remains above uptrend line stretching back to November 2012 lows. Also, Daily MAAD continues to perform slightly better than index pricing, but that margin of safety is diminishing. Best Daily MAAD level since March 2009 was made September 19. Daily MAAD Ratio remains near “Neutral” (.85).
  • Daily CPFL dipped to new short to intermediate low Tuesday. Indicator was negative by 1.77 to 1 on sharp increase in options Dollar Value. Last plot was lowest since last February when S&P 500 was quoted near 1490. Indicator is below long-term uptrend line stretching back to October 2011. CPFL Daily Ratio is “Oversold” at .72.

Market Overview – What We Think:

  • More selling Tuesday not only exacerbated losses in S&P 500 and Dow 30, which is on verge of breaking below first supports, but weakness put secondary indexes (COMPX, VALUA, and TFY) into negative column on Minor Cycle.
  • Adding to Dow problems, Cumulative Volume (CV) in bellwether declined below key supports to levels not seen since Dow was at 13900 last February. Reason that weakness is interesting is because CPFL, heading lower since June 11, is also back to levels not seen since last February.
  • Daily MAAD was weaker Tuesday, but that indicator continues to look a bit better relative to pricing. So it remains to be seen if MAAD is exercising some prescience while suggesting too much bearishness right now might be misplaced, or it is simply out of step with larger forces and Smart Money has overplayed its hand this time.
  • Nonetheless, its true Minor Cycle stats are back into “Oversold” territory. This is evident in price-based data and our VIX-based volatility indicator, VBVI. The other truth is that short-term negativity early in an Intermediate Cycle reversal to negative can stay that way to suggest not so much a new buying opportunity, but a change in trend to negative.
  • So while the “obvious” play might be to bet with the bears, there are still enough signs to the contrary to suggest it might be best to see how and where the short-term trend bottoms out before making any serious bets about the downside for this market on the larger Intermediate and Major Cycles.
  • But there is also a bottom-line for this market – nothing but new highs will re-assert the bull market begun in March 2009. And right now that scenario is a bit frayed.

Index Price Channel Stops (10-Bar MAs of Highs/Lows ) Weekly Monthly
 

10/7

10/8

10/9

10/10

10/11

10/11

10/31

S&P 500 Index

BUY 1704.24

BUY 1701.84

BUY 1699.11

BUY 1696.76

BUY 1695.01

SELL 1650.48

SELL 1478.59

Dow Jones Industrials

BUY 15412.33

BUY 15362.17

BUY 15313.63

BUY 15264.59

BUY 15218.03

BUY 15317.66

SELL 13737.33

NASDAQ Composite

SELL 3755.73

SELL 3759.38

BUY 3798.66

BUY 3802.49

BUY 3805.23

SELL 3584.77

SELL 3099.00

Value Line Index

SELL 4004.81

BUY 4041.91

BUY 4043.33

BUY 4043.16

BUY 4041.88

SELL 3844.18

SELL 3285.29

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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