Market takes hit on week, but larger trend still intact

Weekly Review: MAAD & CPFL Report

 

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1775.32

-29.77

-1.64%

Dow Jones Industrials

15755.36

-264.84

-1.65%

NASDAQ Composite

4000.98

-61.54

-1.51%

Value Line Index

4177.88

-69.95

-1.65%

Russell 2000

1107.05

-24.33

-2.15%

Minor Cycle* (Short-term trend lasting days to a few weeks) Negative

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

The major indexes took a drubbing last week. Selling wasn’t of major proportions, but the bruises were still evident in the wake of the end of the short-term uptrend that began October 9, and even though any threat to the still positive “Intermediate Cycle” advance begun November 16, 2012 was relatively minor. Notice that once again we’ve put “Intermediate Cycle” in quotation marks since by any historical measurements, the positive trend begun November 16, 2012 is way beyond “normal” for a move that usually lasts several weeks to a few months. Semantics aside, however, pricing simply suffered some damage last week.

So at what point does price weakness create trend problems? Using the lower edges of the three Cycle 10-Bar Price channels in the S&P 500, we see that prices have already turned negative on the Minor Cycle. The margins for a negative reversal on the short-term trend are relatively narrow. The Intermediate Cycle takes on a more negative tone below 1721.74 (through December 20) and the margins are somewhat wider. But it is the long-term trend that becomes the most problematic. With a Price Channel sell point below 1525.71 (through December 31), an investor must now wait through nearly 250 points of S&P weakness to arrive at a long-term sell point. No one wants to suffer through that much price pain.

Market Overview – What We Know:

  • Major indexes lost ground last week. Biggest loser was Russell 2000 that was down 2.15%.
  • Volume levels declined 2.4%.
  • Minor Cycle in S&P 500 has turned negative and bellwether must rally above upper edge of 10-Day Price Channel (1804.82 through Monday) to suggest more positive market tone. Intermediate Cycle remains positive until lower edge of 10-Week Price Channel (1721.74 through December 20) is penetrated.
  • VBVI, our VIX-based volatility indicator, continued lower last week and was last at 43.72% on Minor Cycle after reaching a short-term high at 98.48% on November 15. Indicator tends to move lower in negatively biased markets. VBVI was moving lower on Intermediate Cycle and was last at 93.24%.
  • Daily MAAD moved lower last week and was 23 net positive issues below its November 29 high and best levels since March 2009. Only modestly more selling would put Daily MAAD below uptrend line in effect since November 2012. On week, 6 issues were positive and 14 were negative. Weekly MAAD Ratio was moderately “Overbought” at 1.33.
  • Daily CPFL hit new short-term high December 9 and best level since October 9 low at point exactly coincident with ascending uptrend line that stretches back to October 2011. Indicator moved lower all of last week. Daily CPFL also remains about 50% below short to intermediate-term high made June 11. Recent strength continues to look like “return action” rally in larger, negative trend. On week, CPFL Ratio was “Overbought” at 1.57.

But there are other ways to fine tune a long-term reversal, or at least improve the focus on the point at which it’s a good bet one’s strategy ought to be changing from one of buying on weakness to one of selling on strength. First, there is the subjective drawing of a trendline that in this case would connect the bull market low (666.79—S&P 500) made the week of March 6, 2009 with the next reaction low in that uptrend. That point came the week ending October 7, 2011 (1074.77). Stretching the trend line upward to current levels, the intersection point of pricing and the trendline comes near 1410 in the S&P. Not so hot considering that the 10-Month low of the objectively computed Price Channel is nearly 115 points higher. Redefining that uptrend line on the same price bar chart with closing prices only, we can get the trendline higher to 1515—S&P 500 at a point that approximates the lower edge of the 10-Month Price Channel. But we haven’t gained much.

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