Stock market, overbought on short-term, weakens Wednesday

MAAD & CPFL Review

 

Market Snapshot for session ending 10-30-13
 

Last

Day Change

%Change

S&P 500 Index

1763.31

-8.64

-.49%

Dow Jones Industrials

15618.76

-61.58

-.39%

NASDAQ Composite

3930.62

-21.71

-.55%

Value Line Index

4164.01

-36.82

-.87%

Russell 2000

1105.50

-16.46

-1.47%

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.

Market Overview – What We Know:

  • Red ink surfaced in stock market Wednesday and all of major indexes lost ground. Russell 2000, down 1.47%, was biggest loser on day.
  • Short-term trend remains positive in S&P 500 and bellwether must sink below lower edge of 10-Day Price Channel (1731.34 through Thursday) to reverse Minor Cycle to negative. Intermediate Cycle remains positive so long as S&P holds above lower edge of 10-Week Price Channel (1662.76 through November 1).
  • Our VIX-based volatility indicator, VBVI, now “Overbought” on Minor Cycle backed off slightly Wednesday to 92.58% from Tuesday’s 92.89%. At September 19 short-term high VBVI peaked at 92.4%.
  • Daily MAAD was negative Wednesday by 8 to 11 and indicator continues to hold below its October 22 high. Daily MAAD remains above uptrend line stretching back to November 2012. Daily MAAD Ratio was last marginally “Overbought” at 1.28.
  • Daily CPFL was negative Wednesday by 1.49 to 1 and was last at highest point since October 9, but still well below June 11 short to intermediate-term high, uptrend line stretching back to October 2011, and major resistance peak made February 2011. CPFL Daily Ratio was last “Overbought” at 1.81.

Market Overview – What We Think:

  • With Dow 30 finally making new high Tuesday, bullish cause was give another small shot of adrenalin. But with Daily MAAD still failing to make new high through Wednesday while holding below October 22 peak, there is lingering hint Smart Money has been selling into strength and that they have remained unimpressed by new highs in index prices.
  • If Daily MAAD does make new high, and admittedly it wouldn’t take much buying to cause such movement (only 8 positive issues), worries would be temporarily erased. But an ongoing failure could create bigger problems of next larger Intermediate Cycle that remains “Overbought” and mature using all rational price-based measurements.
  • At same time, and despite net gains in CPFL over past two weeks, options players have been less bullish about index price strength since June 11 when CPFL topped out on short to intermediate term. Adding to CPFL worry is fact that CPFL Daily Ratio has moved back to short-term “Overbought” level not seen since last May.

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

10/28

10/29

10/30

10/31

11/1

11/1

11/30

S&P 500 Index

SELL 1708.47

SELL 1718.19

SELL 1725.16

SELL 1731.34

SELL 1737.24

SELL 1662.76

SELL 1500.00

Dow Jones Industrials

SELL 15186.03

SELL 15243.50

SELL 15284.59

SELL 15322.64

SELL 15367.60

SELL 15072.89

SELL 13944.86

NASDAQ Composite

SELL 3818.92

SELL 3841.47

SELL 3857.23

SELL 3872.38

SELL 3887.57

SELL 3652.09

SELL 3145.05

Value Line Index

SELL 4057.03

SELL 4080.71

SELL 4098.42

SELL 4114.02

SELL 4127.93

SELL 3892.95

SELL 3358.97

Russell 2000

SELL 1086.50

SELL 1093.25

SELL 1097.63

SELL 1101.94

SELL 1105.63

SELL 1034.92

SELL 887.74

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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