A Peek Inside SP500 March Rally Market Internals

Mar 19, 2010: 9:17 AM CST

When assessing the strength or weakness of a recent market move – such as the ‘non-stop’ rally we’ve seen so far in March – it’s important to look beneath the price to see the signals from key Market Internals… and that’s what this post does.

Let’s take a look ‘under the hood’ to see how market internals have shaped the recent rally and what might be in store ahead.

(Click for full-size image)

For internals, I study the Breadth (Advancers minus decliners), TICK, and Volume Difference (volume of advancers minus volume of decliners).

I plot these as lines and then compare price highs to internal highs and look for alignments (confirmation) or divergences (non-confirmations).

What are we seeing now?

Long-term internal divergences as well as short term breadth and “VOLD” divergences.  That’s a solid non-confirmation of the recent highs.

That doesn’t mean price is required to ‘fall off a cliff,’ though we’re seeing some sharp downside action take place this morning (Friday) which could indeed continue, if the signal from internals are correct.

I did want to call attention to the March 2-3 divergences which only managed to result in a slight pullback/consolidation in price before internals suddenly strengthened and price rocketed higher as forecast by the sharp pick-up in internals on March 5th (the “Jobs Report” spike).

Now that we’ve seen new price highs, no internal index has reached the peak seen on March 5th’s powerful trend day.

That sets up a ‘multi-swing’ or long-term (that term is relative) divergence, but we’re also seeing a slight short-term or immediate divergence with the highs on March 17th.

Don’t be surprised to see further downside action develop as a result of these divergences, but keep in mind that bulls have been absolutely dominant so far and have ‘bowled over’ the previous negative divergence in market internals as seen here on March 2nd and 3rd.

Keep a close watch for new lows in internals, which would indeed forecast lower price lows yet to come.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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