Market Overview – What We Think:
- Bifurcated stock market reflecting more positive flavor in bluer chips and short-term weakness in secondary indexes makes us wonder if classic Wall Street adage that “Quality is last to go” could be applying itself toward what could be Intermediate Cycle high.
- Fact that Daily MAAD has been struggling to eke out new highs over past several weeks as Dow 30 and S&P 500 have generally worked higher, makes us wonder in Smart Money has been selling into strength, a fact that would account for lessening in upward Momentum of Daily MAAD.
- MAAD measures 20 Most Active issues and willingness of Smart Money to either buy or sell most liquid and highly traded NYSE issues. Divergent action in indicator tends to show up toward important market highs as Smart Money sells into strength.
- There is also fact Cumulative Volume (CV) in S&P and NASDAQ Emini futures contracts peaked back in June along with CPFL. Not that there is any direct link between those components, but failure of three in June cold be consistent with our supposition June short-term top was “statistical” high of uptrend begun in November 2012. What that means is that all price gains since then have been “froth” into an end game. If we are to be proven wrong, CV and CPFL must make new highs.
- There is also no denying fact both Intermediate and major Cycles are mature in terms of price-based oscillators and time spent on trending in ALL of major indexes. Since levels of complacency regarding any serious pullback have become evident with many players continuing to presume prices will only go higher after short-term pullbacks, there is reason to proceed with caution.
On the sentiment front, our Call/Put Dollar Value Flow Line (CPFL) broke below an uptrend line of nearly two years in length in early September, dipped to a short-term low on October 9, and has been moving higher since then on the short term. But improvement in CPFL has merely brought the daily series back up under its long-term uptrend in what looks like a “return action” rally in a negative trend. The buying may have been spurred by net call buying on a Dollar Value basis by options players drifting toward call purchases as the market made new highs. Some of that action may have been hedging strategies triggered by those new highs.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)