S&P 500, Nasdaq to new highs on key indicator strength

MAAD & CPFL Review

 

Market Snapshot for session ending 12-09-13
 

Last

Net Chg

%Change

S&P 500 Index

1808.37

+3.28

+.18%

Dow Jones Industrials

16025.53

+5.32

+.03%

NASDAQ Composite

4068.75

+6.23

+.15%

Value Line Index

4248.02

+.18

+.01%

Russell 2000

1129.46

-1.92

-.17%

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

  • Following through on last Friday’s gains, S&P 500 and NASDAQ Composite rallied to new closing highs Monday. Dow 30 and Value Line index also advanced, but did not make new highs. Russell 2000 lost a bit.
  • Market volume declined a little under 2%.
  • After flirting with negativity on Minor Cycle, S&P 500 is now back toward positive territory. But Monday’s slight close above upper edge of 10-Day Price Channel was not good enough to signal an overt flip to positive on Minor Cycle even though short-term tone is now more favorable. Intermediate Cycle remains positive so long as S&P holds above lower edge of 10-Week Price Channel (1709.21 through December 13).
  • Our VIX-based volatility indicator, VBVI, rose slightly Monday to 76.93% from Friday’s 72.99%. Declining volatility in VBVI is usually bearish for market. Indicator remains moderately overheated. Intermediate Cycle VBVI remains “Overbought” at 99%.
  • Daily MAAD rallied Monday with 15 issues positive, 4 negative, and 1 unchanged. Indicator came within 1 net positive issue of equaling November 29 new high. Daily MAAD remains above uptrend line stretching back to last November’s lows. Daily MAAD Ratio was last into the lower ranges of “Overbought” territory at 1.18.
  • Daily CPFL was positive by 1.73 to 1 Monday and rallied to new short-term high and best level since October 9 low. But indicator remains below June 11 short to intermediate-term peak, rising uptrend line stretching back to October 2011, and major resistance high made February 25, 2011. Daily CPFL was last “Overbought” at 1.65.

Market Overview – What We Think:

  • As we suggested late last week, market’s downside conviction appeared to be lacking even though S&P and Dow 30 were toying with short-term negativity before December 4. Recent downside feint in bluer chips proved point when COMPX, VALUA, and TFY refused to give much ground on sell side.
  • What remains to be seen is if there is going to be enough upside follow-through in face of near-term “Overbought” conditions, failed short-term Momentum, and Cumulative Volume (CV) variances, as reflected in S&P 500 Emini futures.
  • Burden of proof remains on bears. With short-term trend back in limbo with modest upside bias, Intermediate Cycle begun over year ago remains intact. Or, at worst it has yet to be seriously threatened.
  • Hanging in balance, as determined by how much Minor Cycle rolls over in upcoming sessions, will be fate of larger Intermediate Cycle that has remained positive for months. That larger trend may not give up easily.
  • To suggest such an intermediate-term reversal, we would like to see Daily MAAD fail to make new highs even as prices do, albeit by small margins. That action could be a precursor to a more important market reversal.

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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