A Check on Recent Market Internals Ahead of the Fed

Aug 10, 2010: 10:21 AM CST

What are market internals saying about the strength or weakness of the market ahead of Tuesday afternoon’s Fed Decision?

Let’s take a look:

It’s important to compare price swings and extreme highs and lows – or short term trends – with those of the corresponding market internal.  Vertical lines or highlighted regions help.

On the broader scale, the S&P 500 has been consolidating tightly between 1,130 and 1,120 – as I drew with the horizontal trendlines.

During that time, what were market internals doing?  Declining steadily – all three of them.

We had an initial price breakdown as expected Friday on the “Jobs Report,” but then traders/investors decided that the bad Jobs Report was actually GOOD news because it increased the chances the Federal Reserve – in their meeting today – would announce more Quantitative Easing measures.

On a related note, there was a really good article this morning from Scott Lanman at Bloomberg that argues than any sort of announcement today by the Fed was more likely to be designed to boost the stock market (confidence) rather than the actual economy – in other words, tell traders what they want to hear, but that in the long-run, the policy won’t really benefit the economy as much as expected.

Anyway, we did have a pick-up in Market Internals yesterday, but as price made new highs at the end of yesterday, all internals were lower than prior days when price was at a lower respective high (look closely).

So, no one can predict with absolute certainty what the Fed is going to say today, and beyond that, how the market is going to react to it, so take any sort of analysis with a grain of salt ahead of the 2:15 EST announcement – and subsequent market reaction into the close.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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