Just How Much Higher Can this Thing Go on Negative Internals?

Jun 16, 2010: 11:57 AM CST

That is the question!  Price is one part of the equation, internals (volume, breadth, TICK, etc) are another.

Before I show the charts, realize that price is king, and that price moves according to supply/demand imbalances between buyers and sellers, and everything else we use (indicators, internals, etc) are there to help us see the conviction or the extent of imbalance between supply and demand.

So when price moves up and the “other” things we use to monitor price move down – like momentum oscillators, internals, volume, etc – then this is a classic “non-confirmation” and it warns us to be more cautious and careful, and not rush out and buy rampantly because there are hidden “cracks” in the foundation that are showing if you look for them.

And… that’s exactly what’s happening right now in terms of key market internals during this rally off the June 8th low – which had its own set of obvious positive internal divergences before the reversal that ‘forecast’ a reversal.

Let’s see the current state of price and market internals during the rally:

(Click for full-size image via Chart.ly)

For a reference, look at the green arrows that show the positive Breadth and VOLD divergences that “undercut” (failed to confirm) the June 8th price low that forecast a likely reversal… that occurred.

Now, we are seeing the opposite picture… price has ticked its way to a new swing high outside the key 1,110 level, but it did so on weaker volume (not shown) and internals.

Instead of getting too complex, pay attention to the recent values of Breadth and VOLD on today’s intraday high as of 11:00am CST:

Price pushes to new recovery high at 1,117 with the following daily market internals:

Breadth:  -250 (that means 250 MORE stocks were negative on the session than positive… at a new intraday high)
VOLD:  -72,000 (meaning volume was seen as flowing more into declining shares than advancing shares)

It’s one of those market facts that makes your head spin.

So price makes a new high but is undercut by volume and internals – that is NOT the picture of bullish strength you expect to see on a breakout of a key resistance level.

As Mark Douglas says “Anything can happen in the market,” so we could certainly see price continue its rally which will leave many traders scratching their head as to “where’s the volume?” and “where’s the corresponding strength in internals?”

However, if the signal from internals are correct – and we’ll know sooner than later – then we are looking at a Bull Trap that will likely lead to a reversal back down under 1,110, 1,100 and likely even lower… as the floor collapses from under the price.

Watch closely with an open mind until we get a resolution one way or the other.

Corey Rosenbloom, CMT
Afraid to Trade.com

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


16 Responses to “Just How Much Higher Can this Thing Go on Negative Internals?”

  1. sysin3 Says:

    Feels like maybe a bunch of trapped shorts. Every time it dips, they cover some and stop the slide.

  2. Corey Rosenbloom, CMT Says:

    Agreed – a lot of this has the “popped stops” feel to it but that needs to be met with enthusiastic bullish buying – the deterioration in internals shows that doesn't appear to be happening yet.

  3. Dax Says:

    also dont forget that options are expiring and proped up priced are occurring all over the place….wait until that artificial buying reverses!

  4. terlyn Says:

    Also tried to do an A-B-C correction, but it did not work or I counted it wrong.

  5. terlyn Says:

    I thought I counted a 5-wave impulse this morning. Also,, I thought I counted a 5-wave on the 60 minute chart with a divergence at the end of wave 5, which I think we could be ending. Please check me on this.

  6. Heyy Holmes Says:

    Looks like moderately heavy selling into this, as well as all the other recent “rallies”.

  7. Baig Says:

    This is manepulation.computers are working against human brain.they are grabing money from individual investors who depends on fundamental analysis and technical analysis.all trades are going against us and opposit way.no fundamentals,technicals,economic news and calculations working.i can give you hundreds of examples where fundamentals and technicals are going opposit.this is a game going on on wall street.its no more fair market.its big game going on to drain money from individual investors.

  8. Corey Rosenbloom, CMT Says:

    I tend to think Baig and Dax are right – it's options expiration and “they” seem to want the market to go higher, and so it seems they are successful to push it higher, as scared bears cover (buy to cover). Just let this one go until things return to normal next week.

  9. terlyn Says:

    If SPY gets to 115 or 117 and then reverses, there will be a head and shoulders pattern.

  10. TickerStreet Says:

    Abbas Ali Baig, How does market going up mean grabbing money from individual investors? Individual investors are always long.

  11. TickerStreet Says:

    Corey, They can stall the price at these levels which will allow the internals to correct. Then, they can push the market higher on positive internals from there on.

  12. Corey Rosenbloom, CMT Says:

    True, but it's unusual to have such a situation happen. It's much more common to see false momentum divergences than false internal divergences… but anything is possible.

  13. Corey Rosenbloom, CMT Says:

    I think I see Baig's point in that the funds/big funds are keeping the market up which actually benefits the investors, but in so doing, they are knocking through overhead resistance levels on negative divergences in momentum, volume, and breadth – all of which would cause a short-term or intraday trader to get short.

  14. The Big Picture: Dow Jones - Seite 731 - Aktienboard Says:

    […] The Big Picture: Dow Jones Just How Much Higher Can this Thing Go on Negative Internals? Jun 16, 2010: 11:57 AM CST That is the question! Price is one part of the equation, internals […]

  15. terlyn Says:

    I'm losing about $35.00 a day. I'm trying to do everything right, but it's not working.

    It would have been a good idea to swing trade starting June 8.

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