Market spike to new highs underscores lingering long-term positives

MAAD & CPFL Report

 

Market Snapshot for session ending 12-18-13
 

Last

Net Chg

%Change

S&P 500 Index

1810.65

+29.65

+1.66%

Dow Jones Industrials

16167.97

+292.71

+1.84%

NASDAQ Composite

4070.06

+46.38

+1.15%

Value Line Index

4262.16

+50.82

+1.21%

Russell 2000

1133.72

+14.83

+1.32%

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

  • Sharp gains in major indexes Wednesday pushed S&P 500, Dow 30, and NASDAQ Composite indexes to new closing highs and best levels since March 2009. Value Line and Russell 2000 indexes did not hit new highs although both gained.
  • Market volume rose sharply by nearly 26%.
  • With S&P 500 back above upper edge of 10-Day Price Channel, bellwether must now decline below lower edge of 10-Day Price Channel (1787.80 through Thursday) to suggest more negative market tone. Intermediate Cycle remains positive so long as S&P holds above lower edge of 10-Week Price Channel (1721.74 through December 20).
  • On price strength, market volatility spiked higher Wednesday. Our VIX-based volatility indicator, VBVI, rose to 56.04% from Tuesday’s 34.57%. Indicator was essentially “Neutral” at last plot. Declining VBVI is usually bearish for market. Indicator remains “Overbought” on larger Intermediate Cycle (90.98%).
  • Daily MAAD was positive by 15 to 4 Wednesday with 1 issue unchanged. Indicator did not make new high and was last just 3 positive issues from equaling new high made November 29. Daily MAAD was just above uptrend line stretching back to November 2012. Daily MAAD Ratio was last marginally “Overbought” at 1.18.
  • Daily CPFL was positive by 1.86 to 1 Wednesday. Indicator hit short-term high December 9 and best level since October 9, 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 Ratio was “Neutral” at .99.

Market Overview – What We Think:

  • As we noted yesterday, “…with larger trends still positive, we cannot rule out possibility this pullback could prove to be just one more corrective phase in bull trend.” That apparently was the case as the small a-b-c pullback in pricing begun after November 29 short-term highs was, indeed, just another short correction in otherwise positive larger trends.
  • While Value Line and Russell 2000 indexes rallied, but did not make new highs with S&P, Dow, and COMPX, that reticence may prove to be academic in days just ahead. In other words, if general market strength continues VALUA and TFY will almost certainly also make new highs.
  • Flip side of all of this is that Wednesday’s gains were merely short-covering rally. But we doubt that is what occurred.
  • In a word, Wednesday’s gains put us back at a juncture we’ve experienced several times before over the past year-plus when short-term pullbacks were followed by new highs. That kind of market set up will end, but for the moment there is little to do but watch, wait, and enjoy the ride since the market has continued to signal that buying on weakness is preferable to selling on strength.
  • It is important to note that time used on trend since November 2012 is way beyond historical norm for “Intermediate Cycle” (usually several weeks to several months), but since uptrend has remained intact, we will continue to identify it as an “Intermediate” move, as opposed to a Major Cycle advance like the one that began in March 2009.

Index Price Channel Stops (10-Bar MAs of Highs/Lows ) Weekly Monthly
 

12/16

12/17

12/18

12/19

12/20

12/20

12/31

S&P 500 Index

BUY 1804.82

BUY 1805.31

BUY 1804.77

SELL 1787.80

SELL 1784.58

SELL 1721.74

SELL 1525.71

Dow Jones Industrials

BUY 16028.50

BUY 16023.74

BUY 16014.66

SELL 15857.12

SELL 15826.51

SELL 15341.00

SELL 14176.10

NASDAQ Composite

BUY 4059.61

BUY 4063.70

BUY 4064.95

SELL 4025.92

SELL 4019.00

SELL 3822.90

SELL 3205.62

Value Line Index

BUY 4265.47

BUY 4263.33

BUY 4256.52

SELL 4216.82

SELL 4193.83

SELL 4067.11

SELL 3444.08

Russell 2000

BUY 1134.24

BUY 1133.54

BUY 1130.91

SELL 1114.02

SELL 1110.72

SELL 1078.71

SELL 909.73

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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