A Look at Market Internals Now and Prior to the Fall Jan 12

Jan 12, 2010: 5:23 PM CST

Market Internals are good leading indicators of the likely pathway ahead for price, as they allow you to take an “X-Ray” of what’s really going on behind the scenes on a price move.

Let’s take a look at the key market internals through the whole recent rally and what they’re showing right now.

This is the standard chart of intraday market internals I use, which includes the following:

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 on the session minus Volume Flowing INTO Declining Stocks on the session ($VOLD)

We saw new Breadth and new Volume Difference ($VOLD) Highs on January 4th, which signaled odds favored higher index prices yet to come (hidden sign of strength), but as price scaled higher almost in a straight line, market internals deteriorated until finally price ‘gave way’ and declined sharply today.

Market Internals do not signal trade entries themselves, but they can clue you in to the probabilities of trend continuation or reversal – on each new day of declining highs in Breadth and Volume Difference, odds also crept higher that a reversal was likely – like a rubber band being stretched beyond what is comfortable.

Today is either a quick snapback, or the beginning of a larger down-move to unwind the excess of the recent highs in prices and take us back to the 1,120 level at a minimum.

All Internals – including the TICK lows – made lower lows not seen since the end of December at the 1,120 level.

Unless we see signs of upward price movement and an increase in market internals, the signal seems to be to expect more downside action in retracement fashion.

Keep up with internals and analysis of the expected moves for the next trading session, along with educational lessons/commentary on each day’s activity by becoming a member to our Idealized Trades daily service.

Corey Rosenbloom, CMT
Afraid to Trade.com

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