* Cycle status is based on S&P 500.

Market Overview – What We Know:

• More selling surfaced in major indexes Monday, but while rate of descent diminished somewhat in S&P 500 and Dow 30, selling pressures increased in COMPX, VALUA, and TFY.
• Market volume decreased 7.4% relative to last Friday’s levels.

• S&P 500 is currently negative on Minor Cycle and must rally above upper edge of 10-Day Price Channel (1845.86 through Tuesday) 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, declined Monday to 51.33% from Friday’s 59.63%. VBVI on Intermediate Cycle was last toward “Overbought” at 88.51%.
• Daily MAAD was negative Monday with 2 issues higher and 18 lower. 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 .66.
• Daily CPFL was negative by 2.33 to 1 Monday and remained slightly below high made last Thursday at best level since early August 2011. Daily CPFL Ratio was moderately “Overbought” at 1.59.

Market Overview – What We Think:

• Monday’s selling moved S&P 500 and Dow 30 within range of lower edges of 10-Week Price Channels on Intermediate Cycle with COMPX, VALUA, and TFY following suit. Proximity of those statistical support levels could set stage for some rebounding action in sessions just ahead, considering extent of losses over past several sessions.
• If, however, there is no short-term rebounding and selling pressures continue, odds would be good that uptrend initiated in November 2012 would be 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. With market on cusp of intermediate negativity, that issue will soon be resolved.
• 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.

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.

Next page: Indicator review

We are also updating the daily chart of both the Call/Put Dollar Value Flow Line (CPFL) and Most Actives Advance/Decline Line (MAAD) indicators every day and providing the most recent raw data so you can begin to plot the indicators on your own (see below). The weekly equity index indicator summary provides longer-term commentary based on these indicators.

The definitions of the indicators along with links to the original stories provide helpful background. Also, Robert describes these indicators in a recent I-Trade show presentation available online.

*Note: Unchanged issues are not counted.