MCO Update 4/09/12

The McClellan Oscillator dropped into oversold territory Monday. This was accompanied by the Cumulative Volume Index spiking down to -55, an area which has produced bounces in the past. It is not clear whether or not the current decline harbingers something worse to follow.

The Summation INdex, at -2417 is now in neutral territory (zero=+1000) and with the MCO below -200 even if the market begins to bottom here, with the MCO forming a complex reversal pattern, the SUM Index should get below -2000 before turning higher.

Because of the prolonged divergence between the MCO and SUM with the SPX the current spike may only represent a retest of the early March lows. So far the 10% Index has stayed above the -500 threshold which is constructive. All of this looks like a "wall of Worry" correction in a bull market fueled by low interest rates. As long as we don't experience a complete breakdown over the next week or so we can expect a decent rally into the summer months.

The SPX with the MCO and Summation Index
Click to enlarge