• Cycle status is based on S&P 500

If there was five days of trading in which the words “schizophrenic” and “frenetic” could be combined to measure market action, last week was it. On Monday, a 23.17 point loss in the S&P and 179.11 points of negativity in the Dow 30 suggested the bloom had been knocked off the short-term rose. Nope. Tuesday a sharp rebound developed and Wednesday four of the five majors tapped out more new highs along with our Daily Most Actives Advance/Decline Line (MAAD). But Weekly MAAD was flat. And despite the fact that our Call/Put Dollar Value Flow Line (CPFL) rallied Friday back above key resistance made last June 11 and to its best level since August 8, 2011, Momentum on the Minor, Intermediate, and Major Cycles has confirmed none of the market’s recent strength to new highs.

And then at week’s end, all of the major indexes we follow were positive, except the S&P 500 that was down fractionally. But the S&P actually closed at a new high, confirmed by Cumulative Volume (CV), last Wednesday by .02 before fading into Friday’s close. And while the Dow 30 was actually a bit higher on the week, the blue chip index remains marginally below a new high made back on December 31. The NASDAQ Composite, Value Line, and Russell 2000 indexes all made new highs last week, but VALUA was unchanged over five days.

Market Overview – What We Know:

• Confined to narrow closing levels relative to previous week, major indexes were mixed last week. Despite a new closing high, S&P 500 was down slightly over five days. Dow 30 was up, but failed to better December 31 high. NASDAQ Composite, Value Line, and Russell 2000 indexes all closed at new highs last week, but were mixed by Friday.
• Weekly market volume declined 2%.
• Despite flirtation with short-term negativity early last week. S&P 500 remains positive on all Cycles including Minor, Intermediate, and Major. To turn short-term trend negative, bellwether must sink below lower edge of 10-Day price Channel (1827.71 through Monday). Intermediate Cycle remains positive until lower edge of 10-Week Price Channel is penetrated (1770.00 through January 24).
• Our daily VIX-based volatility indicator, VBVI, remained in lower reaches of “Overbought” territory last Friday (84.85%), while larger Intermediate Cycle reading increased to “Overbought” at 96.21%.
• Daily MAAD rallied to new high and best level since March 2009 last Wednesday, then faded into Friday close. Weekly MAAD was unchanged after hitting new high week ending January 10. On week 10 issues were positive and 10 were negative. Weekly MAAD Ratio was moderately “Overbought” at 1.55.
• Daily CPFL rallied to new short-term high last Friday, above resistance made June 11, 2013, and to best level since August 8, 2011. On week, CPFL was positive by 4.02 to 1 with Weekly CPFL Ratio moderately “Overbought” at 1.72.

Market Overview – What We Think:

• “Frenetic and schizophrenic” market, as played out last week, has left major indexes positive on all cycles and poised to make another series of new highs. But it remains to be seen if faltering Dow 30 and trailing Momentum in face of “Overbought” conditions on all cycles will have negative affect.
• It could be that some apparent indecision over past couple of weeks in bluer chips will be positively resolved and that lesser blues like COMPX, VALUA, and TFY are merely prescient. But it is a certainty that short-term negativity would be telltale sign of potential weakness on larger, intermediate uptrend that has been underway since November 2012.
• In interim, trend bias still tips in favor of bulls, lacking any serious negative divergences, with proximity to new highs making it somewhat easier for bulls to prove their point than for bears to prove theirs.
• To look toward more negative market tone, we would need to see Daily MAAD begin to fail on upside relative to higher pricing. But such a divergence has yet to surface on heels of new high made by Daily MAAD last Wednesday. If anything, for over a year Daily MAAD has quickly erased any suspicions it might be lagging upward price bias and has even led indexes to new highs on several occasions.
• Put another way, when MAAD does begin to fail on the upside, its warnings should not be taken lightly since last two times indicator demonstrated significant divergences on Major Cycle were prior to highs in 2000 and again in 2007. On Intermediate Cycle there was negative divergence just before May 2011 correction and worst pull back of bull market since March 2009. In other words, lacking a current negative divergence, Smart Money has yet to signal it has begun to exit this market.

If you took assiduous notes over the past two paragraphs, here’s the clincher -- after five days of trading and with all of the buying and selling brouhaha getting to Friday’s close, on a percentage basis, the market went nowhere. Three of the majors were up fractions. One was down a sneeze. And one was unchanged.

Daily S & P 500 with Cumulative Volume (CV)

Weekly S & P 500 with Cumulative Volume (CV)

So what are we left with? The most obvious observation is that after two weeks of trading into the New Year, the stock market seems to be having a lot of trouble making any headway one way or another. While the Intermediate Cycle in effect since November 16, 2012 remains intact along with the more important Major Cycle that was initiated in March 2009, the smallest Minor Cycle remains “sort of.” Since it is that short-term trend that will ultimately provide clues as to the staying power of the intermediate, and then the major trend, right now it reminds us of the indecisive teenager unable to make a decision about what to wear to the dance Saturday night. No doubt, bigger decisions just ahead will toughen up the decision-making process, but for the moment, a short-term bet might not be a good idea.

Daily S & P 500 Emini Futures contract with Cumulative Volume (CV)

Weekly S & P 500 Emini Futures contract with Cumulative Volume (CV)

There is also the fact that in the back of our technical mind we remain aware of those long-term, upside, Measured Move Targets (see accompanying table) we have been highlighting for the past several months. Three of the five major indexes we follow are slightly above target levels, while two are fractionally below. On average, all five were last 1.64% above targets, as calculated from the March 2009 lows. Given the subjective nature of such calculations, we nonetheless find it interesting that the market has been losing upside Momentum for the better part of the past three months. That failure explains why Momentum on no cycle, Minor, Intermediate, or Major, has made a new high with prices.

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.

But Measured Move Targets, failed Momentum, and “Overbought” conditions on all Cycles aside, there is one truth about this market that remains a fact – all Cycles including Minor, Intermediate, and Major remain positive. While the short-term trend is the weakest of the three to the extent it has been the most volatile and contradictory recently, until we see some serious negativity develop on that smaller trend, there is virtually no chance the rally begun in November 2012 is over, let alone the major advance that is about to enter its fifth year. When the new high in Daily MAAD and CPFL are thrown into the mix, the burden of proof remains with the bearish contingent for sure. If, however, the market’s apparent indecision over the past two weeks begins to resolve itself more negatively on the Minor Cycle, then we could begin to look askance at the larger trends. It is important to keep in mind, however, that near-term negativity developed on several occasions since November 2012, was followed by a short-term lows, new buying, and then new highs. But only one upcoming exception is needed to develop a rule.

McCurtain Most Actives Advance/Decline Line (MAAD)

Daily MAAD perked to a new high last Wednesday, then moved lower Thursday and Friday. The indicator remains above an uptrend line stretching back to the November 2012 “Intermediate Cycle” lows. Weekly MAAD was unchanged, despite the new high in the Daily series.

What that new high in Daily MAAD suggests is that Smart Money has yet to begin exiting this market in a serious way. If short-term pricing begins to fade in the session just ahead, Daily MAAD would almost probably mirror, if not predict, that weakness. More short-term selling could also seriously threaten the 14-month-old uptrend in Daily MAAD. But it is what might develop after a short-term high is put in place that could make a difference. If Daily MAAD then failed to demonstrate any improvement on any pricing rebounds, and a noticeable negative divergence between the indicator and prices began to develop, we could make a case that Smart Money had begun selling into strength. That is not the case yet, and it remains to be seen when that divergence will develop.

McCurtain Call/Put Dollar Value Flow Line (CPFL)

The most we can say about that new high in CPFL that developed last Friday is that it is interesting. Strength by the indicator back above the June 11, 2013 resistance high to its best level since August 8, 2011 is evidence there has been net buying on a Dollar Value basis since last October 9. But we wonder if that positive tone could prove to be “late in the game.”

While we don’t mean to contradict the tone of our own indicator, since it is apparently bullish, the “why” question does come to mind. Following an indicator high in the vicinity of a Minor Cycle high in late May, CPFL declined from June 11 until October 9. In the process, it fractured an uptrend line stretching back to October 2011. But then the indicator turned on a dime, rallied, broke above resistance, and was last trading at its best levels in nearly 2/12 years. Apparently options players discovered something in the market that caused then to abandon a net bearish outlook and they moved to the long side. For now, we simply accept the fact CPFL has moved to a new high, but it remains to be seen in the face of other contradictions if that strength is prescient or after the fact.

Conclusion

Despite last week’s volatility that resulted in closing levels little changed from the previous week, the truth remains that all Cycles, Minor, Intermediate, and Major, are still positive. Although the short-term trend has been the most unsettled recently, the fact is it wouldn’t take much buying to push pricing to new highs. And so long as that shortest cycle does not seriously jeopardize the uptrend that has been underway since November 2012, we cannot rule out another positive run.

But each time there is one of these periods when some indexes make new highs while others struggle, when there is variant indicator confirmation, and the market appears to be irrationally howling under a full moon syndrome (January 16), we wonder when one of these short-term volatilities will bite enough to end a noticeably mature Intermediate Cycle that is way beyond “intermediate” by any historical measure. Then we always call up the old market truth that price dictates trend reality. Always has. Always will.

*Note: Unchanged issues are not counted.

**Note: All data is for calendar week ending on Friday even though ending date may be a holiday. Unchanged issues in MAAD calculations are not counted.