Stock indexes power higher, but Dow lags

Weekly Review: MAAD & CPFL Analysis

 

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1759.77

+15.27

+.88%

Dow Jones Industrials

15570.28

+170.63

+1.11%

NASDAQ Composite

3943.36

+29.08

+.74%

Value Line Arithmetic Index

4180.86

+31.13

+.75%

Russell 2000

1118.34

+3,57

+.32%

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

Intermediate Cycle* (Medium trend lasting weeks to several months) Positive

Major Cycle* (Long-term trend lasting several months to years) Positive

* Cycle status is based on S&P 500

On marginally higher overall activity, equity prices rallied again last week. All of the major indexes except the Dow Jones Industrial Average reached new highs. Despite the fact the Dow was last 106.66 points and 0.68% below its September 18 new closing higher of 15676.94, the bellwether was nevertheless the week’s top performer with a gain of 1.11%.

In fact, the last time the Dow led the market into a significant top with an upside failure prior to the other indexes was into the high it made January 14, 2000. That peak was reached two months before the S&P 500 made a high on March 24, 2000. The NASDAQ Composite made a new closing high on March 10 with the Russell 2000 peaking on March 9, 2000.

Market Overview – What We Know:

  • All of major indexes except Dow 30 rallied to new highs last week. Despite recent price reluctance, however, the Dow was best gainer on week, up 1.11%.
  • Overall market volume rose 4.3%.
  • Still positive on Minor Cycle, S&P 500 must decline below lower edge of 10-Day Channel (1708.47 through Monday) to suggest more negative market tone. Intermediate Cycle remains positive until lower edge of 10-Week Price Channel (1662.76 through November 1) is penetrated.
  • VBVI, our short-term volatility indicator, was last plotted at 91.55% and was within range of similar “Overbought” reading when indicated peaked at 92.45% into most recent short-term market high mid-September. VBVI remains positive, but vulnerable at 99% on Intermediate Cycle.
  • Daily MAAD put in place short-term high October 22, but did not confirm new highs in other indexes sans Dow last week. Daily MAAD needs another 13 net positive issues to better its October 22 high and best level since March 2009. Indicator remains above uptrend line stretching back to November 2012 intermediate-term lows. On week, 11 issues were positive and 9 were negative with Weekly MAAD hitting new long-term high.
  • Daily CPFL improved again last week and reached best level since late August after making short-term low on October 9. Indicator was last “Overbought” at 1.92% on Minor Cycle. Despite strength over past several days in CPFL, indicator remains 50% below short to intermediate-term high made June 11 while holding below long-term uptrend line stretching back to October 2011.

The Dow’s recent failure to confirm new highs in the other major indexes could be erased in one day, but if it does not make a new high in the face of “Overbought” statistics on all cycles, that failure could prove to be prescient given the fact our Daily Most Actives Advance/Decline Line (MAAD) for the first time in months failed last week to make a new high wither prior to or with the major indexes. Daily MAAD, that has been a cheer leader for higher prices for nearly a year, peaked on October 22. While the Weekly MAAD series did eke out a new high last week, that larger trending indicator did so with a net positive of only 2 issues. And admittedly, Daily MAAD only needs another 13 positive issues to make a new high.

Market Overview – What We Think:

  • If broad market is approaching long-term endgame, Dow 30 and Daily MAAD will not make new highs and prescience of those two bellwethers will not work in favor of bulls. Some would suggest failure by Dow is unimportant. We beg to differ since that negative variance creates a psychological, if not actual, divergence it is difficult to ignore. “How can bull market remain healthy if Dow is not participating by also making new highs?”
  • But if there is more strength remaining in short-term advance underway for past couple of weeks and especially in Intermediate Cycle begun in November 2012, then new highs in all indexes and Daily MAAD will follow and we would have to look for another series of negative divergences to suggest a longer-term market high.
  • There is no denying both Intermediate and major Cycles are mature, however. Since levels of complacency regarding any serious pullback are evident with many players continuing to presume prices can only go higher since “stock market is only game in town,” there is all more reason to proceed with caution. “Overbought” conditions on all cycles underscore that need.
  • There is also reality market has entered 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.

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