As stock market sinks, then spikes higher, detractors persist

Weekly Review: MAAD & CPFL Analysis

 

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1703.20

+12.70

+.75%

Dow Jones Industrials

15237.11

+164.53

+1.09%

NASDAQ Composite

3791.87

-16.08

-.42%

Value Line Arithmetic Index

4054.13

+25.04

+.62%

Russell 2000

1084.31

+6.06

+.56%

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

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

For any trader myopically fixated on S&P action last week, with trend line focus tossed in for good measure, last Tuesday’s break below an uptrend line stretching back to the November 16, 2012 Intermediate Cycle low (1343.35) proved to be a beautiful draw play not working ultimately to the advantage of sellers. With the S&P closing down 20.67 to 1655.45 with short-term momentum negative Tuesday, bears may have been encouraged by weakness in the Dow 30 that was teasing short-term support. Also on Tuesday the NASDAQ Composite, Value line and Russell 200 indexes were hammered.

But fuggedaboutit! Deeply “Oversold” price stats, relatively neutrality in Daily MAAD, and volatility readings in a zone of opportunity combined to suggest that despite that trend line break in the S&P, selling in a still positive intermediate-term uptrend might be a bad bet. It was. BOOM! After a quiet day Wednesday, shorts were blown out of the water Thursday with a 36.16 point rally in the S&P and a 323.09 gain in the Dow. Follow-through action Friday again lifted all boats and the Value Line index finished at a new all-time closing high.

Market Overview – What We Know:

  • Following a rocky start, all of major indexes rallied and closed on plus last week with only exception in NASDAQ Composite that was down fractionally. Value Line index rallied to new all-time closing high.
  • Overall Market volume rose nearly 4%.
  • Via end of week gains, S&P 500 rallied above upper edge of 10-Day Price Channel to give more positive tone to near-term trend. Bellwether must now sell below lower edge of 10-Day Channel (1678.95 through Monday) for short-term trend to become more negative. Intermediate Cycle remains positive until lower edge of 10-Week Price Channel (1651.61 through October 18) is breached.
  • Our short-term volatility indicator (VBVI) was last “Neutral” at 50.4% after dipping into “Oversold” territory early last week. VBVI remains positive, but vulnerable at 99% on Intermediate Cycle.
  • While Daily MAAD eked out new short-term low last Tuesday, indicator has remained relatively resilient over past month, despite weaker performance by S&P and Dow 30. Daily MAAD remains in uptrend stretching back to November 2012 intermediate-term lows. On week, 11 issues were positive and 9 were negative with Weekly MAAD tapping out new high and best level since March 2009. Daily MAAD Ratio was just above “Neutral” at 1.06 with Weekly Ratio marginally overheated at 1.28.
  • Daily CPFL sank to new short to intermediate-term low last Wednesday and lowest level since February when S&P 500 was quoted near 1500. Indicator remains below uptrend line begun October 2011. Line was penetrated on downside during first week of September to underscore disenchantment with market by options players who have been buying more Puts than Calls on Dollar Value basis since mid June.

So why all the post game revelations? Despite under performance in the S&P and Dow after the mid-September highs, the relative reluctance of secondary issues on downside and what appeared to be internal corrective action by a number of our indicators including Daily MAAD and VBVI, there was a hint that betting negative on the market might not work out well. That was apparently the case. Not only did Daily MAAD hold up after it peaked back on September 18, but since then the indicator has experienced only marginal weakness. In fact, right now it would only take another 28 positive issues for Daily MAAD to equal its September 18 high and 29 for a new high. On a slightly more positive note, Weekly MAAD did rally to a new high last week.

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