Friday Feb 21 Midday Check on Market Internals at the Highs

Feb 21, 2014: 12:57 PM CST

What are Market Internals revealing about the structure of the market as it trades just shy of all-time highs?

Let’s take a look at the “Big Three” Intraday Market Internals to hear their message:

SPX SP500 S&P 500 Market Internals TICK Breadth VOLD

We compare Market Internals with corresponding price highs and lows.  Note the positive “triple” divergence on the new price low of February 5th which corresponded with higher lows in all three market internals.  This marked the low of the swing.

For additional reference, see the importance of the 1,740 level as I described in the prior update.   It’s also discussed in the “Daily Planning Levels” update as well.

A clear Market Internal Divergence into a known higher timeframe support or resistance level can be a key catalyst for a turning point (reversal) in the market.

If the reversal fails and the trend continues, this spot allows the tightest stop with the highest potential return (into a key level).

With that being said, we have a similar situation with internals diverging into the prior resistance highs of 1,845.

Here’s a closer view of the Divergence in Market Internals:

SPX SP500 S&P 500 Intraday Market Internals TICK Breadth VOLD

Starting with the February 5th index low testing 1,740, we see the stellar reversal rally (resumption of the higher timeframe uptrend and a reversal of the lower timeframe/intraday downtrend).

Price traveled 100 points higher to the current 1,845 resistance cluster and upside target for traders.

We have a similar situation into 1,845 wherein price will either reverse the short-term intraday trend and develop another retracement down against the higher frame prevailing uptrend.

For traders, internals signal caution and classical odds favoring a pause or retracement down against 1,845.

As traders however, we have to plan alternate thesis outcomes which would include a powerful upward breakout – fueled by the bears/short-sellers stopping out (buying-back to cover) – beyond 1,850.

A break above 1,850 could be a sudden catalyst that propels the index into 1,875.

For now and into next week, keep a close focus on the diverging internals (signaling caution) into resistance and be ready to play a possible “short-squeeze” breakout impulse (one of many that has occurred) in the event buyers continue to extend the higher frame uptrend through a short-term resistance target.

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Corey Rosenbloom, CMT
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