Adding to the modestly positive short-term mix, the S&P, Dow, VALUA, and TFY have all moved above the upper edges of their respective 10-Day Price Channels to suggest an end to the short-term pullback begun nearly a month ago. Only COMPX needs to confirm similar action, but that index was last less than 14 points from the upper edge of its 10-Day Channel.
Market Overview – What We Think:
- As we suggest in our Market Summary, counting on a resumption of more short-term negativity last week proved to be a bad bet. With new closing high in VALUA and with Daily MAAD poised to make new highs in wake of new highs by Weekly MAAD, there is a possibility downdraft since mid September will prove to be yet another buying opportunity in intermediate trend begun last November.
- But there is also another possibility sharp recovery last Thursday and Friday could prove to be a short-covering rally and that new high in VALUA is an aberration. New highs, or the lack of them, in all indexes would prove the point one way or another.
- While the short-term cycle remains toward “Oversold” levels, if the market is about to experience yet another short-term rally that could result in new highs, it is doing so in face of lingering “Overbought” conditions on both Intermediate and Major Cycles. At some point those longer-term readings will begin to exert themselves, but only after there has been a short-term failure to extent last pullback was not followed by new highs.
- There is also reality market is entering that time of year that has on occasion been backdrop for some of worst declines in stock market history. Think October 1929, October 1987, and October 2007.
In a nutshell, the market appears to have lifted off from yet another short-term low just as was the case six other times including and since last November. But here’s the problem. While all of those rallies in the S&P and the Dow into the May highs were accompanied by improving volume as measured by Cumulative Volume (CV), since May CV has noticeably lagged in the bluer chips but did a bit better in COMPX. Unfortunately there are no volume stats for VALUA and TFY, but if there were we suspect the readings would close to COMPX. What is also troublesome is that CV in S&P, Dow, and NASDAQ futures took big hits after the May highs. Taken together, CV action in cash and futures is an indication that the commitment to the market for the past 4 ½ months, and despite generally higher prices, has been met with less enthusiasm than it was off of the November 2012 lows.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)