Dow manages new high; key indicator fails; Russell 2000 sinks

Weekly Review: MAAD & CPFL Analysis

 

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1761.64

+1.87

+.10%

Dow Jones Industrials

15615.55

+45.27

+.29%

NASDAQ Composite

3922.04

-21.62

-.55%

Value Line Index

4150.35

-30.33

-.73%

Russell 2000

1095.67

-22.67

-2.03%

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

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

Well, that’s that. Sort of. All of the major indexes including the Dow Jones Industrial Average rallied to new highs last week, but once the highs were reached Tuesday, profit taking set in. Only the S&P 500 and the Dow 30 finished on the plus side on the week while that stubborn and cussed Daily Most Actives Advance/Decline Line (MAAD) continued to refuse to make new highs and held below its October 22 peak.

So was last week’s movement to new index highs a small Pyrrhic victory in that while new highs were achieved, the rug has already begun to be pulled out from under some of the participants? At week’s end the Russell 2000 was down a little over 2% with a new short-term negative signal evident. The NASDAQ Composite and the Value Line index were close on the heels of TFY while the S&P and Dow that had been lagging the other three were on top.

Market Overview – What We Know:

  • All major indexes including recently lagging Dow 30 rallied to new highs last week. Cumulative Volume (CV) in Dow did not make a new high, however. Selling in wake of highs created week’s biggest loser in Russell 2000 that was down 2.07%.
  • Overall market volume rose 2.5%.Still positive on Minor Cycle, S&P 500 must decline below lower edge of 10-Day Channel (1742.92 through Monday) to suggest more negative market tone. Intermediate Cycle remains positive until lower edge of 10-Week Price Channel (1664.08 through November 8) is penetrated.
  • VBVI, our short-term volatility indicator, was last plotted at 92.05% in “Overbought” territory on short-term cycle. Into mid-September Minor Cycle high, indicator was at 92.45%. On Intermediate Cycle VBVI remains positive, but vulnerable at 99%.
  • Daily MAAD was fractionally higher last week, but remains below October 22 peak and best level since March 2009 after refusing to make new highs with broad market. Indicator remains above uptrend line stretching back to November 2012 intermediate-term lows. On week, 10 issues were positive and 10 were negative.
  • Daily CPFL was lower last week after recovering steadily from October 9 short-term low. But indicator also remains below uptrend line stretching back to October 2011 lows and was last 50% below short to intermediate-term high made June 11.

“Leading” or “lagging” could ultimately prove to be a matter of semantics with indicators and pricing since the short-term trend remains “Overbought” and vulnerable. The same is true on the larger Intermediate and Major Cycles that are mature by any measure.

There is also the fact that while the Dow 30 appeared to be confirming the new highs made the previous several days by the S&P 500, NASDAQ Composite, Value line and Russell 2000 indexes, the underpinnings of that Dow strength, as measured by Cumulative Volume (CV) were absent. In other words, the 30 made a new high by inches, but CV did not. On a statistical basis the Dow Jones Industrial Average did not make a new high.

Market Overview – What We Think:

  • While move to new highs by Dow 30 appeared to confirm recent strength in other major indexes, fact that Cumulative Volume (CV) in Dow did not also make new high suggests Dow strength may have been a draw play. Subsequent selling in COMPX, VALUA, and TFY that was big loser on week underscore that notion.
  • So to suggest Dow 30 made new high and confirmed not only strength to new highs in other indexes and Dow 20 via Dow theory could be a misnomer and could prove to be a very nice hook with which those now long could regret buying into the latter stages of a mature Intermediate Cycle.
  • Fact that Daily MAAD continues to underscore lack of health in this market by failing to make new highs, while holding below its October 22 high, is another subtle nuance weighing in favor of an end to year-old uptrend.
  • MAAD, which measures 20 Most Active issues and willingness of Smart Money to either buy or sell most liquid and highly traded NYSE issues, is reflection of fact Big Money does not tread lightly. Divergent actions in indicator tend to show up toward important market highs as Smart Money sells into strength. While MAAD divergence is currently small, it could broaden in sessions just ahead if more near-term weakness develops.
  • There is no denying fact both Intermediate and major Cycles are mature in terms of price-based oscillators and time spent on trending. Since levels of complacency regarding any serious pullback have become evident with many players continuing to presume prices will go higher since “stock market is only game in town,” there is reason to proceed with caution.

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