* Cycle status is based on S&P 500.

Market Overview – What We Know:

• Resumption of selling Wednesday pushed all of major indexes lower to new short-term lows with S&P 500, Dow 30 threatening negativity on larger Intermediate Cycle underway since November 2012. COMPX, VALUA, and TFY are in close pursuit on downside.
• Market volume decreased 4.9% Wednesday.
• S&P 500 is currently negative on Minor Cycle and must rally above upper edge of 10-Day Price Channel (1845.83 through Thursday) 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, sank Wednesday to 43.00% from Tuesday’s 51.33%. Indicator is not yet into “Oversold” territory, however. VBVI on Intermediate Cycle was last toward “Overbought” at 88.51%.
• Daily MAAD was negative by 4 to 16 Wednesday and remained below new high made January 15. Indicator is also noticeably below defined uptrend line stretching back to November 2012 lows, but Daily MAAD has shown less deterioration than index pricing Daily MAAD Ratio was negative into “Oversold” territory at .61.
• Daily CPFL was negative by 3.60 to 1 Wednesday and was holding below new high made January 23 at best level since early August 2011. Daily CPFL Ratio was marginally “Overbought” at 1.26.

Market Overview – What We Think:

• More selling Wednesday not only extended losses on near-term trend, but it brought pricing in S&P 500 and Dow 30 closer to negative resolution on Intermediate Cycle while also creating first signs of near-term “Oversold” conditions. COMPX, VALUA, and TFY are trending in same negative direction, but remain some less unfavorable than S&P and Dow.
• What could be developing issue could be “Oversold” conditions relative to Intermediate Cycle statistical support. If any meaningful rebounding is going to develop it should begin to develop soon. If not and further selling develops, likelihood of confirmed Intermediate Cycle negation of uptrend since November 2012 would be likely.
• In fact, Daily MAAD movement to new short-term low after penetrating uptrend line in effect for past 14 months is not a positive in favor of new highs. While we would have liked a negative indicator divergence into recent highs, fact MAAD now looks negative on short-term trend is something bulls must overcome since if suggests Smart Money is shifting to sell side.
• Underscoring recent short-term negativity, its possible longer-term “Overbought” conditions may be finally beginning to bite pricing. As we have suggested repeatedly, however, unless short-term negative has definitive effect on larger intermediate trend, any near-term pull back could once again prove to be just a correction in larger cycle.
• But 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.