Since price is the final arbiter of profits and losses, how current short-term trending plays out will determine not only whether all of the major indexes are able to hit new highs, but failing that, how the larger Intermediate Cycle plays out. It also remains to be seen in the wake of last week’s price action whether strong gains last Thursday and Friday were short-covering rallies and the last hurrah of a noticeably mature Intermediate Cycle uptrend, or if they will prove to be yet another upward resumption of the same bull trend.
McCurtain Most Actives Advance/Decline Line (MAAD)
Despite what turned out to be noticeable volatility in the market last week, Daily MAAD appeared to be relatively nonplussed. A break by the S&P 500 last Tuesday below a defined intermediate-term trendline was not confirmed by Daily MAAD that merely eked out a slightly lower low and remained intact on the still positive Intermediate Cycle. And when the major indexes rallied sharply last Thursday with follow-through on Friday, Daily MAAD perked higher, but only modestly.
Other good news is that Weekly MAAD rallied to a new high last week and its best level since March 2009 while Daily MAAD only needs another 28 positive issues to equal its September 18 short-term high. What all of this means is that MAAD remains stronger than the market. Daily MAAD gave up little ground after the September 18 highs and could make new highs to confirm Weekly MAAD action with ease.
At some point the upside prescience of MAAD will end. Hopefully before final highs in the market develop the indicator will have put in place a divergent top. That was the case prior to the major highs in 2000 and 2007 and the intermediate-term high in May 2011.
McCurtain Call/Put Dollar Value Flow Line (CPFL)
Options buyers, at least relative to their willingness to buy Call options on a Dollar Value basis, continue to look askance at the stock market. Net, they have been buying more Puts on a Dollar Value basis since June 11 when CPFL topped out on the short to intermediate-term cycles. While the lead times for this indicator on a divergence basis can be months, when the trending of the indicator is compared to index pricing, it takes on a greater relevance and we become more focused on when the CPFL trend is broken rather than how that high necessarily relates to previous highs.
In other words, while CPFL: peaked on the long-term relative to the March 2009 lows in February 2011 and a few months before the May 2011 intermediate-term highs, the indicator trended upward with pricing following the October 2011 price and indicator lows even though it has yet to exceed those spring 2011 highs. When combined with the fact CPFL now has a double divergence to the extent it has failed on the long-term cycle and the intermediate, there is a lingering suggestion options players have increasingly been viewing the advance since November 2012 with less enthusiasm and especially since the June highs.