April 7 Midday Check on Market Internals

Apr 7, 2010: 12:28 PM CST

Wednesday’s morning action brought expected selling as forecast by the recent declines in market internals (mentioned in yesterday’s update), but is that all the selling the market can muster?

Let’s take a quick look at the 1:00 EST Wednesday internals in the S&P 500 and intraday dominant trendlines to watch.

For internals, we monitor the:

1.  ADD – “Breadth” (NYSE Advancers – Decliners)
2.  TICK (NYSE) for extreme highs and lows
3.  VOLD (NYSE) Volume of Advancers minus Volume of Decliners

Yesterday’s new index recovery high (above 1,190) was met with a further deterioration in internals, which hinted at today’s sell-off in the morning.

Take a look at the updated internal chart.

I also mentioned the dominant short-term trendline from yesterday, connecting the two prior lows from April 1st.

Today’s low – so far – has been that rising trendline, as the market has strengthened, breaking back above the 5-min EMAs in bullish breakout mode.

As of now, we’re seeing new intraday highs but NOT seeing new highs in TICK, VOLD, or Breadth, which serves as a non-confirmation.  Typically, you’d want to see new intraday highs being confirmed with new internal highs.  Failure to see that is a non-confirmation and warning sign.

(UPDATE:  shortly after I captured the chart, we had our new intraday TICK, Breadth, and VOLD high as a confirmation at 1:25 EST)

Breadth has been negative all day, so look for any positive crossover in breadth above zero to the positive zone – that will serve as a confirmation.

Look to trade long if you see a bullish pick-up (new intraday highs) in internals, and until then, watch price very closely.

It seems the bulls will continue the rally at all costs, and part of what is driving the market higher is ‘popped stops’ from the short-sellers.

Either price will reverse, or we’ll start to see internals pick up and confirm the rally – it’s generally safer to have price and internals in alignment when making intraday trades.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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