Stock indexes sink Thursday, likely finishing short-term uptrend

* Cycle status is based on S&P 500.

Market Overview – What We Know:

• Major indexes took big hit Thursday with all closing negatively. S&P 500, NASDAQ Composite, and Value Line and Russell 2000 indexes are now signaling new negatives on Minor Cycle. Only Dow 30 remains short-term positive.
• Market volume increased 19.7%, as prices declined.
• With movement below lower edge of 10-Day Price Channel (1753.46 on Thursday), S&P 500 has signaled an end to short-term advance begun October 9. To take on more positive tone, bellwether must now rally above upper edge of 10-Day Price Channel (1765.60 through Friday). Intermediate Cycle remains positive so long as S&P holds above lower edge of 10-Week Price Channel (1664.08 through November 8).
• VBVI, our VIX-based volatility indicator, moved lower Thursday to 93.06% from Wednesday’s 96.81%. Indicator is still “Overbought” short-term. At September 19 short-term high VBVI peaked at 92.4%.
• Daily MAAD was negative Thursday with 4 issues higher and 16 lower. Indicator made fractionally higher new high Tuesday and hit best level since March 2009. Daily MAAD remains above uptrend line stretching back to November 2012. Daily MAAD Ratio was last toward “Neutral” at 1.06.
• Daily CPFL was negative by 1.41 to 1 Thursday after hitting new short-term high and best level since October 9 on Wednesday. But indicator remains 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 marginally “Overbought” at 1.15.

Market Overview – What We Think:

• The short-term advance begun after October 9 lows (1646.47—S&P 500) is probably over. Given ironic fact recently lagging Dow 30 is only major index of five we follow still positive relative to Minor Cycle uptrend, odds are good the 30 will also soon capitulate.
• Given additional fact NASDAQ, and especially TFY that has taken a major drubbing over past several days, look weak on charts along with VALUA, further short-term weakness could follow.
• We are disappointed, however, that Daily MAAD after squeaking out a slightly higher high on Tuesday has hardly been a harbinger of market weakness if it turns out further selling is going to follow. One way to interpret Daily MAAD reluctance, however, would be to suggest no serious selling will develop. That’s possible, but at some point such a supposition could prove to be wishful thinking, given maturity of larger Intermediate Cycle. So it will be interesting to see how Daily MAAD plays out from here on.
• And then there is Daily CPFL that, despite strength for the past month coincident with short-term rally in pricing, remains in longer-term downtrend while holding nearly 50% below June 11 short to intermediate high in indicator. That longer-term negative divergence is bearish.

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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About the Author

Robert McCurtain is a technical analyst/market timer, private investor and financial markets consultant based in New York City. He can be reached at traderbob@nyc.rr.com.

If you would like to read more about how the CPFL is constructed, read a Futures article on the concept. This link will take you to the MAAD article. A two-part series about system development with the MAAD also is available.