Stock indexes capture new highs in low-volume week

Weekly Review: MAAD & CPFL Analysis

Market Overview – What We Think:

  • New closing highs in all of major indexes last week merely re-asserted still positive Minor, Intermediate, and Major Cycles on upside. That has been case on long-term trend since March 2009, and more specifically since November 2012.
  • And while there remain negative divergences such as in Cumulative Volume (CV) in S&P Emini, CPFL, short-term Momentum, and lingering “Overbought” conditions based on price, bull trend remains intact.
  • But given fact that major indexes are now less than 1%, on average, from long-term upside measured move targets as calculated from March 2009 lows, we would not be surprised to see this market put in place a short-term top relatively soon. Depending on how that cycle evolved, Intermediate Cycle could become an issue.
  • Regarding longer-term trending, we would first like to see some sort of negative divergence develop in our usually prescient MAAD indicator. Since a potentially negative divergence was erased last week in Daily MAAD, the waiting process must begin anew. But if and when such a negative disparity develops, it could be precursor to an important top.
  • Cumulative Volume (CV) in S&P Emini futures contracts has shown improvement since a peak back in June, but has not made new high since then, despite new highs in cash S&P CV. That is a concern. Why have futures-buying folks been less enthusiastic about market for better part of past several months?

But that information is not a sell signal. It is merely a warning since pricing is ultimately the final arbiter of an investor’s profits or losses. Other indicators we follow are used in the same fashion. Our Most Actives Advance/Decline Line (MAAD) that measures the willingness of big money to be on the buy or sell side of the market relative to the 20 Most Active issues, moved higher with the major indexes off of the March 2009 lows. But that strength was relatively feeble with the decline in the spring of 2011 causing MAAD to suffer a good hit that forced it to sink back toward the 2009 lows. But following the October 2011 intermediate term bottom, MAAD began to pick up steam on the upside. And from November 2012 it became a cheer leader for higher index prices to suggest Smart Money had become more comfortable with equities. That still seems to be the case since the indicator hit another new high last week.

Daily S & P 500 with Cumulative Volume (CV)

Weekly S & P 500 with Cumulative Volume (CV)

There are a number of other indicators we follow. Cumulative Volume (CV) measures the amount of activity going into an issue relative to price. Currently CV in the cash S&P has moved pretty much in synch with the index. But a lingering and negative divergence persists in CV in the S&P 500 Emini futures contract. Emini CV peaked back in late May in the same time frame as CPFL. It has yet to get back above that May high to suggest that futures contract buyers have been less enamored of this market for the past six months than they were following the November 2012. Again, more information.

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