Market sinks Monday, putting long-term trend in jeopardy

MAAD & CPFL Report

 

Market Snapshot for session ending 1-13-14
 

Last

Net Chg

%Change

S&P 500 Index

1819.20

-23.17

-1.26%

Dow Jones Industrials

16257.94

-179.11

-1.09%

NASDAQ Composite

4113.30

-61.36

-1.47%

Value Line Index

4322.07

-58.53

-1.34%

Russell 2000

1148.09

-16.44

-1.41%

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.

Market Overview – What We Know:

  • All major indexes closed sharply lower Monday. Biggest loser was NASDAQ Composite, down 1.47%.
  • Market volume rose 8.4% on price weakness.
  • Selling in S&P 500 Monday moved bellwether below lower edge of 10-Day Price Channel to signal short-term negative. S&P must now rise above upper edge of 10-Day Price Channel (1831.26 through Tuesday) to suggest more positive near-term trend. Intermediate Cycle remains positive so long as S&P holds above lower edge of 10-Week Price Channel (1766.14 through January 17).
  • VBVI, our VIX-based volatility indicator, declined to 86.07% Monday, but remains toward “Overbought” territory. VBVI remains “Overbought” on larger Intermediate Cycle (96.22%).
  • Daily MAAD was negative Monday by 6 to 14 after perking higher to new high last Friday. Indicator remains above uptrend line stretching back to November 2012. Daily MAAD Ratio was last near “Neutral” at 1.06.
  • Daily CPFL was negative by 1.39 to 1 Monday after hitting best level since October 9 short-term low Friday. Indicator remains below June 11 short to intermediate-term peak, but margin relative to that high has been shrinking. Daily CPFL Ratio was “Overbought” at 1.53.

Market Overview – What We Think:

  • Monday’s weakness across the board dropped an anvil on short-term advance that had been underway since December 18 (1767.99—S&P 500). With market still moderately overheated on short-term, more net weakness should not be ruled out.
  • But thing to remember is that for past 14 months each time short-term has flipped negative, near-term “Oversold” conditions developed relatively quickly and buyers once more stepped in to drive prices upward to new highs. Maybe this near-term negative will prove to be exception, but there will inevitably be Minor Cycle decline that will ultimately play out relative to uptrend begun November 16, 2012.
  • One indicator we will closely monitor will be Daily MAAD which, despite Monday’s sharp losses, was only lower by 14 issues with 6 positive. What that variance suggests is Smart Money has yet to throw in towel. If, however, Daily MAAD creates an exception and sinks below its year-plus uptrend line, we would have to reassess.
  • If it turns out current selling proves to be nothing but a brief hesitation within context of longer-term positive and the bull market remains intact, nothing but new highs will suffice to prove point. That’s easy to determine.
  • But if market sinks lower, takes on more water, and intermediate-term uptrend comes under serious threat, then visions of longer-term problems would begin surfacing. Given fact that all major indexes remain within range of our upside Measured Move calculations (see January 10 Weekly Summary), we continue to wonder if this market is closer to an end game than not.

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

1/13

1/14

1/15

1/16

1/17

1/17

1/31

S&P 500 Index

SELL 1831.45

SELL 1831.26

SELL 1831.22

SELL 1830.84

SELL 1830.79

SELL 1766.14

SELL 1551.80

Dow Jones Industrials

SELL 16419.79

SELL 16429.04

SELL 16431.50

SELL 16423.55

SELL 16414.17

SELL 15700.32

SELL 14355.21

NASDAQ Composite

SELL 4133.80

SELL 4132.88

SELL 4134.21

SELL 4134.81

SELL 4135.39

SELL 3934.14

SELL 3288.16

Value Line Index

SELL 4340.40

SELL 4339.13

SELL 4340.23

SELL 4339.55

SELL 4341.34

SELL 4157.21

SELL 3527.53

Russell 2000

SELL 1153.04

SELL 1152.17

SELL 1151.82

SELL 1151.49

SELL 1151.75

SELL 1099.71

SELL 933.67

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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