Instant Check on Market Internals and the Selloff

Nov 7, 2013: 2:42 PM CST

What message are Market Internals sending while we’re experiencing a sharp sell-off in the broader equity indexes?

Let’s take a look at the S&P 500 with the “Big Three” Market Internals:

SPX Sp500 Market Internals TICK Breadth NYSE TICK NYSE Breadth Advance Decline VOLD Volume Difference

We tend to look to Market Internals both as a Confirming Variable (note the yellow highlight) where price AND internals both rise together (it suggests additional price highs are likely yet to come) and a Non-Confirming Variable through divergences (which is what we’ve seen ever since October 23).

The chart above, and my prior update “End-of-October Internals in a Persistent Trend” remind us that price can extend despite divergences (meaning a divergence is not an automatic signal for a price reversal).

Nevertheless, rising prices on falling internals make it more difficult for buyers/bulls to push price higher and achieve gains – it’s like a rubber band stretching.

Today’s session marks a breakdown in the arc trendline intraday pattern and potential beginning of a new sell-swing in the market, particularly if we see a clean break and close under the rising reference trendline on the Daily Chart (this morning’s post).

We can also see weakness in Internals (new lows) as highlighted by arrows ahead of today’s sharp sell-off.  This can be labeled a “Kick-Off” or hidden “Sign of Weakness” via Richard Wyckoff’s teachings.

Incorporate the chart above of Market Internals with the Daily Chart trendline to develop short-term swing and intraday trading game-plans accordingly.

Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning parameters as we watch a “hold and bounce” or “break and retrace” scenario play out in the near future.

Corey Rosenbloom, CMT
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Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

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