Checking on SP500 Diverging Breadth and Current Structure March 28

Mar 28, 2011: 10:57 AM CST

What is the current “hidden” picture of market strength or weakness from the perspective of Market Breadth?  Not good, for one.

Let’s take a look at NYSE Market Breadth in terms of the current snap-rally and what levels are important to watch.

First, the bigger “breadth” picture from the 30-min chart:

What we’re seeing is the S&P 500 and NYSE market Breadth (number of advancing issues minus declining issues) on a color indicator.

Starting with the left side of the chart, we see two divergences in breadth and two market reversals that followed the divergences – that’s what’s supposed to happen traditionally (I posted on these at the time).

Then, we had a nice symmetrical triangle at the beginning of March which gave way to the Japan crisis which took down global markets in the middle of the month.

Breadth formed a clean positive divergence on March 16th’s low – forecasting a potential up-rally to come – and indeed that rally developed and we’re now asking the question:  “When will that rally end?”

As I mentioned last night from a price and volume perspective, the rally strongly broke above critical confluence resistance levels in all indexes.

Price is one thing – perhaps the ONLY thing it seems – but as we saw, volume was NOT confirming the rally (it diverged almost the entire way up).

We’re seeing a similar picture with Breadth, TICK, and VOLD (the three market internals), as I’m highlighting above in the Breadth chart.

The first level to watch was the declining blue trendline and the immediate (now) level is the midpoint of the symmetrical triangle (“value area”) at 1,320 – which is (as of this post) the current intraday high.

With that in mind, let’s step-inside the action via the 10-min chart structure:

The chart above allows us to “step inside” the positive Breadth divergence on March 16th and see the expected rally up from the divergence.

What now?

We’re seeing price slam into the 1,320 value area from the symmetrical triangle – doing so on two forms of divergences.

First, Breadth highs are down from the 2,000 level hit during March 17 – 21.  Keep in mind price was LOWER at that time, and given that price is now higher with internals reading lower highs, that is your “external” or “bigger picture” divergence.

Beyond that, we have a smaller “internal” divergence from March 25th to today’s open, Monday the 28th.

Keep in mind that price pulsed up beyond Friday’s high in the morning session, but it did so on lower Breadth.

For those keeping track:

Friday’s high of 1,319.18 registered a breadth reading of 1,549;

Monday morning’s high of 1,319.74 recorded breadth lower at 983.

While a difference of less than a point in the index is not significant, a difference in 566 issues NOT advancing (positive on the session) is significant – that’s 40% lower.

Anyway, as I mentioned with regard to volume, now we see breadth forming clear divergences with price as well.

No, a reversal down is not guaranteed, but it is forecast by the non-confirmation signals in volume, Breadth, and what I’m not showing specifically above in TICK (highs) and VOLD (volume difference of Breadth).

If this market trades lower/reverses, that’s fine – it will show that the early warning signals from internals and volume were correct.

The trouble comes if price continues breaking higher above 1,320 on even LOWER internals and volume.

If you want to make money in that situation- who doesn’t – you’ll need to follow PRICE  and it would seem nothing else.

Corey Rosenbloom, CMT
Afraid to Trade.com

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2 Comments

2 Responses to “Checking on SP500 Diverging Breadth and Current Structure March 28”

  1. Tprovan Says:

    today it was interesting spy had new price high new
    tick high 9:47 wack a mole 9:50 so was in sos
    long
    then osilator diverg 10:14 but large volume bar
    at 10:41 said its turning
    trend line break and pull back at 10:48
    what signal would you use to go short?

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