With a new week upon us, let’s take a quick look at the current picture of S&P 500 Market Internals as seen on the 30min multi-day frame.
We’re seeing the following indicators under the SPY ETF of the SP 500 Index:
BREADTH: NYSE Net Advancers on the session minus Net Decliners on the session ($ADD)
TICK: NYSE TICK - NYSE Stocks “ticking up” at a given moment minus those “ticking down” ($TICK)
VOLUME DIFFERENCE: Volume Flowing INTO Advancing Stocks minus Volume Flowing INTO Declining Stocks ($VOLD)
With the exception perhaps of the $VOLD, you should be able to replicate this chart in your trading software/platform.
I’m showing how divergences in key market internals can precede reversals/retracements (such as that on the run to new highs on declining internals on January 14th).
With the exception of Friday’s strong sell-off into the close, we were seeing positive divergences in the internals listed above as price was cresting lower on the session - an indication that odds were shifting to favor a ‘bounce’ higher.
We are now seeing that bounce, but for now it is taking on the form of a ‘counter-trend’ retracement into resistance bounce, so caution is still warranted.
The Breadth and VOLD made new indicator swing highs while TICK did not, which muddies the waters. Usually, when you get new indicator highs when price is not making a new high (or after a deep pullback), then this can be an initial sign of strength forecasting higher prices yet to come).
Watch to see if price can rally solidly above $110.50 which would be bullish, and then back above $111.50 (roughly 1,105 and 1,115 respectively in the S&P 500) - both of which would shift the odds in favor of a continued up move.
Until then, odds currently seem to indicate that this is an oversold retracement bounce that should be treated with caution for the time being.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade
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