Market Internals Checkup Ahead of the Fed Day

Dec 11, 2012: 6:59 PM CST

As we prepare to react to Wednesday’s Fed Day Announcement and Chairman Bernanke press conference, let’s take a look at Tuesday’s breakout, the prior compression in Market Internals, and what levels are important going forward.

We’ll start with the 30-min intraday chart of the S&P 500 with Breadth (Advancers minus Decliners) and VOLD (Volume Difference of Breadth).

The big thing to note here is the visual compression – a triangle pattern – in both Breadth-based internals.

In general, compression phases in market internals tends to precede an immediate breakout and price expansion phase.  We’ll be looking for any continued upside price action before and of course after the news-making announcements Wednesday.

Price gapped and held above the 1,420 short-term high and traveled all the way to the 1,430 prior resistance high before selling off into the close.

With this, we saw a visual upside break (confirmation) in Breadth but no visual breakthrough in VOLD (Volume Difference).

We generally have higher confidence in a successful price breakout if it is confirmed by a spike-up in internals (and volume).

Finally, observe the 30-min price-based trendline as the defining line of short-term support.  Buyers do no want to see the index under this important trendline (it could trigger short-sale intraday opportunities).

We can see the picture and a clearer trendline on a lower frame intraday chart (5-min):

With the 5-min chart, we also add the TICK and see a similar compression though not as clear as the triangle in Breadth.

I also am highlighting the strong readings in VOLD which suggest broader based volume flow (bullish).

Strength in VOLD appeared as early as the December 5th price low which shows an important lesson in price and internal divergences.

I drew a shorter term trendline which connects Tuesday’s low and this allows us to set up trade and position planning.

A breakdown under 1,425 would be a bearish trigger for a potential play toward 1,420.  Any continuation of selling pressure that breaks under 1,420 would be expected to bring in additional selling and could lock in a Bull Trap from those who bought in Tuesday’s breakout.

However, the chart-based index resistance into 1,430 – Tuesday’s high – will be the upside focal point to trigger a continuation of the short-term uptrend, especially if traders quickly react bullishly to the Federal Reserve events Wednesday.

Keep internals in mind along with these key short-term levels as the trading day unfolds on Wednesday.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

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Comments
  • On Tuesday, December 11, 2012, Bloomberg reported economists foresee QE 4. Fed seen pumping up assets to $4 Trillion in new buying. The Federal Reserve will amplify record accommodation tomorrow by announcing $45 billion in monthly Treasury buying that will push its balance sheet almost to $4 trillion, according to a Bloomberg survey of economists.

    The news of more global credit liquidity, rallied World Stocks, VT, near their September 14, 2012 high, with the World Banks, IXG, trading to a new rally high, as the National Bank of Greece, NBG, Australia Bank, WBK, Korea Banks, WF, SHG, KB, Bank of America, BAC, and the Too Big To Fail Banks, RWW, India Bank, IBN, trading higher on the day. The World Small Cap Stocks, VSS, traded to a new rally high.

    Greece, GREK, rose to strong resistance, pushing carry trade invested Poland, EPOL, Netherlands, EWN, Sweden, EWD, Switzerland, EWD, and the European Shares, VGK, to new rally highs.

    Asia, EPP, seen in this Finviz Screener, were led higher by Thailand, THD, Phillippines, EHPE, South Korea, EWY, Taiwan, EWT, Australia, EWA, Australia Small Caps, KROO, New Zealand, ENZL, and Vietnam, VNM.

    Anticipation of US Central Bank Monetary easing pushed Turkey, TUR, Mexico, EWW, Israel, EIS, India, INP, and the UK, EWU, higher. Argentina, ARGT, Russia, RSX, and Brazil, EWZ, rose parabolically higher.

    The S&P, SPY, rose to strong resistance well below its September 14, 2012 high. It has been driven lower by REM, IYR, KRE, MTK, SLX, IHE, OIH, XLE, XRT, XSD, XBI, and MXI.

    The Large Cap Growth Stocks, JKE, took, the Nasdaq 1000, QTEC, Semiconductors, XSD, Networking, IGN, Software, IGV, Cloud Computing, SKYY, Steel, SLX, Biotechnology, XBI, higher.

    Mining Stocks, MXI, rising included Rare Earth Manufacturer, MCP, Industrial Metal Producers, ZINC, HW, GSM, Iron Ore Producer, CLF, Aluminum Producers, KALU, AA.

    Industrial Electrical Stocks rising included ETN, and AME.

    Metal Manufacturing, XME, rising included STLD, GHM, NUE, RS, WOR, and AZZ.

    The S&P Dividend Stocks, SDY, and the Dow Dividend Stocks, DYY, which had sold off, have rallied back up to their September 14, 2012 highs.

    The rise in Major World Currencies, DBV, and the Emerging Market Currencies, CEW, and the Commodity Currencies, CCX, shot the Small Cap Pure Value Shares, RZV, to a new rally high; and the credit sensitive US Small Caps, IWM, strongly higher. The currency demand curve, that is the ratio of RZV:RZG, rallied to a new high, continuing its 27 week rally since June 1, 2012. The higher currencies drove both Global Water, CGW, and Global Real Estate, DRW, to new rally highs, and rallied Global Agriculture, PAGG, Farm Equipment Manufacturers, MTW, CNH and Agricultural Chemicals and Specialty Chemical Manufacturers seen in this Finviz Screener higher.

    Technology Stocks, MTK, rising included Cloud Computing, SKYY, with Salesforce, CRM, rising strongly, Networking Shares, IGN, and Application Software, IGV.

    Commodities, DBC, and USCI, traded lower; but Timber, CUT, continued higher, taking Paper Products, WOOD, higher.

    Total Bonds, BND, traded lower, on US Government Treasuries, ZROZ, BAB, EDV, TLT, as Junk Bonds, JNK, Senior Bank Loans, BKLN, and Leveraged Buyouts, PSP, rose to new rally highs. It is the Distressed Investments, like those taken in by the US Federal Reserve under QE 1, and traded by the Fidelity FAGIX Mutual Fund, FAGIX, that have underwritten, high beta Stocks, such as BAC, and highly debt leveraged stocks such as IP, in an ongoing global debt trade as is seen in the ongoing Yahoo Finance chart of FAGIX, and JNK, BKLN, PSP, JPM, BAC, IXG, IP

    The US Dollar, USD, UUP, traded lower, as the major world currencies, DBV, of which the US Dollar is a component, traded to a new rally high, being led so by the Australian Dollar, FXA. Emerging Market Currencies, CEW, popped to a new rally high above its September 14, 2012 high.

    The stock markets are at an inflection point; stock values cannot be sustained as full monetary expansion has been achieve on the exhaustion of the world central banks monetary authority.

    The dynamos of corporate profitability and global traded that power Capitalism, European Socialism, and Greek Socialism, are powering down. And the dynamos of regional security, stability and sustainability are powering up Regionalism And Totalitarian Collectivism.

    Neoliberalism’s Free To Choose Floating Currency is failing, and in its place Neoauthoritarianism’s Beast Regime of Diktat is rising in its place. The fiat money system is dying and is being replace by the diktat money system, where diktat will serve as wealth, currency, and credit.

    The age of leverage, produced the global debt trade; but it can no longer be supported, as is seen in Mortgage Reits, REM, Real Estate, IYR, and Regional Banks, KRE, trading lower. The age of deleveraging will force debt servitude on all, beginning in the Eurozone. Germans cannot be Greeks, but all will be one living in a region of true European regional economic governance, where leaders will meet in summits, waive national sovereignty, and pool sovereignty regionally, to announce regional framework agreements, which provide for unified banking, regional fiscal budgeting, and public private partnerships governing the factors of production, to complement existing Eurozone monetary authority. The word will and way of a Sovereign, and his Seignior, meaning top dog banker who takes a cut, will be the law of the region, replacing traditional constitutional and national law.

    CNBC reports Euro zone crisis is back as Italy loses its 'savior'. And Peter Schwarz of WSWS reports Italian Prime Minister Monti resigns. Monti resigned for tactical reasons. He is attempting to secure a long-term and stable parliamentary majority for his increasingly unpopular austerity measures. And Reuters reports Berlusconi move could undermine Monti agenda in Italy.

    Nick Beams of WSWS reports The political economy of the Spanish bank bailout. The initial measures are widely regarded as the prelude to a full-scale bailout of the Spanish state and the establishment of a financial dictatorship of the kind now in place in Greece.

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