Market bounces higher Tuesday, but gains likely unsustainable

MAAD & CPFL Report

 

Market Snapshot for session ending 1-28-14
 

Last

Net Chg

%Change

S&P 500 Index

1792.50

+10.93

+.61%

Dow Jones Industrials

15928.56

+90.68

+.57%

NASDAQ Composite

4097.96

+14.35

+.35%

Value Line Index

4273.96

+37.60

+.89%

Russell 2000

1138.24

+10.51

+.93%

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

Intermediate Cycle* (Medium trend lasting weeks to several months) Neutral / Negative

Major Cycle* (Long-term trend lasting several months to years) Positive

* Cycle status is based on S&P 500.

Market Overview – What We Know:

Rebounding Tuesday lifted all of major indexes in wake of losses over previous several sessions. Biggest gainer on day was Russell 2000, up .93%.

Market volume decreased 17.4% on strength, however.

S&P 500 is currently negative on Minor Cycle and must rally above upper edge of 10-Day Price Channel (1846.32 through Wednesday) to indicate more positive near-term tone. Lower edge of 10-Week Price Channel on Intermediate Cycle becomes challenged below 1781.63 through January 31.

VBVI, our VIX-based volatility indicator, rose slightly Tuesday to 53.25% from Monday’s 51.33%. VBVI on Intermediate Cycle was last toward “Overbought” at 88.51%.

Daily MAAD was positive by 15 to 5 Tuesday, but remained below new high made January 15. While broad market has erased most of gains since mid-December short-term low, Daily MAAD has only fallen back about two-thirds of same distance. Daily MAAD Ratio was negative at .80.

Daily CPFL was negative by 2.25 to 1 Tuesday, despite market strength and remained slightly below high made January 23 at best level since early August 2011. Daily CPFL Ratio was moderately “Overbought” at 1.57.

Market Overview – What We Think:

Tuesday’s bounce in wake of recent losses was not big surprise, especially considering that bluer chip S&P 500 and Dow 30, slightly weaker than COMPX, VALUA, and TFY, had declined to vicinity of statistical support as determined by lower edge of 10-Week Price Channels. More rebounding could follow, but sustained strength until short-term “Oversold” conditions develop is not likely.

Odds remain good that uptrend initiated in November 2012 is probably over. In fact, weakness by Daily MAAD below defined uptrend stretching back to November 14, 2012 is a negative omen in favor of more selling, ultimately.

In other words, longer-term “Overbought” conditions may be finally beginning to bite pricing and at least some larger cycle corrective action could develop in weeks just ahead.

As we have suggested repeatedly, however, unless a new short-term negative has an appreciable effect on larger intermediate trend, any near-term pull back could once again prove to be just a correction in larger cycle.

Underscoring all of this is fact that once short-term negative runs its course, nothing but new highs would reassert bull market begun in March 2009.

 

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

1/27

1/28

1/29

1/30

1/31

1/31

1/31

S&P 500 Index

BUY 1844.74

BUY 1845.86

BUY 1846.32

BUY 1845.83

BUY 1842.50

SELL 1781.63

SELL 1551.80

Dow Jones Industrials

BUY 16480.26

BUY 16485.05

BUY 16477.87

BUY 16458.02

BUY 16410.15

SELL 15847.31

SELL 14355.21

NASDAQ Composite

BUY 4197.01

BUY 4204.90

BUY 4214.56

BUY 4218.60

BUY 4216.86

SELL 3989.18

SELL 3288.16

Value Line Index

BUY 4388.60

BUY 4383.58

BUY 4398.72

BUY 4402.61

BUY 4399.44

SELL 4195.25

SELL 3527.53

Russell 2000

BUY 1168.42

BUY 1170.40

BUY 1172.96

BUY 1174.99

BUY 1173.76

SELL 1112.77

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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