S&P 500 - May 20, 2011

This is a weekly chart with cyclical momentum overlaid

It’s 9 week since the low of March and we still see no sign of a turn in cyclical momentum. I have talked about structural weakness using OEW and MAI indicators. We can also see momentum weakness

If we zoom out

We see that, in most occasions, momentum lows (or peaks) precede price lows (or peaks). In fact, going back many years, a 9-month momentum is not an ordinary occurrence.

This is the chart we have been using for OEW and MAI indicators

I have said a number of times that these indicators have to uptrend and get to the top of their panels. This is not what we have been seeing. In fact, the peak of early May was accompanied with a lower peak for mid-term OEW as well weekly and daily MAIs.

It’s not a disastrous situation. All three indicators are still above zero denoting a positive tilt to aggregate trend (as measured by OEW) and aggregate structure (as measured by MAI). The weekly momentum cycle we just saw is also above zero (dropping but above zero). So the situation is not terribly negative, but it reeks of internal weakness, like a patient with a serious yet curable disease. The cure of the market’s disease at this time is money deployed on the bid side so that we start seeing uptrending OEW and MAI indicators, and, eventually, a turn in weekly momentum cycle.

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