Market Internals on the Expected Bounce from SPX 1040

Jun 30, 2010: 10:40 AM CST

We shouldn’t be surprised at all that buyers stepped in to support the market here at the critical line in the sand at 1,040 in the S&P 500.

Now, with a bounce underway, let’s take a look at the market internals and the “finger” spike as they exist mid-morning on the day after the crash.

This the standard triple-market internal chart I watch that reveals the market ‘under the hood.’

Yesterday, the market sold off hard to test the absolute line in the sand (final support price) between bulls and bears.

Price held 1,040 as a floor, spiked through it on a “finger” set-up (false penetration that often results in a rally in the opposite direction), and now we’re seeing an expected bounce.

What are market internals saying during the bounce?

Yesterday saw a breadth low of -2,651 (the difference of advancers minus decliners).  Strangely enough, if you look closely, you’ll find that the “finger” spike low under 1,040 did NOT register a new Breadth low – that was a non-confirmation and positive divergence.

Breadth now registers 1,200 after peaking this morning so far at 1,639.   That’s bullish.

The TICK also is rallying from its lows of yesterday and – though you’ll have to take my word for it – on the 5 and 1-min chart, the absolute low of the day yesterday was NOT met with a confirming new TICK low on the session – so TICK as well formed a positive divergence on the spike low – finger – of yesterday.  That’s bullish.

VOLD is another story – with breadth so negative, it was impossible to get a positive divergence in VOLD into the close.

However, VOLD – the difference in volume of advancers – volume of decliners – is showing remarkable improvement this morning, after registering a spike low yesterday at the close of 1,625,215.  VOLD currently is positive 233,927.

As always, divergences are one thing – they serve as the initial condition – but a price breakout above a trendline or short-term moving average (or prior price high) is another thing which serves as a trigger for entry or repositioning.

Specifically, price breaks CONFIRM positive divergences and enhance the odds of a reversal… or continued bounce from the ‘non-confirmed’ price low.

Watch to see how price holds giving these improved bullish conditions in internals… and how far a bounce can go.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

5 Comments

5 Responses to “Market Internals on the Expected Bounce from SPX 1040”

  1. mikesmith53 Says:

    Hi Corey,
    Wondered if you might do a post on the significance of the large descending triangle that has formed on SPX since the April 2010 high. What does it mean going forward for prices if the downside levee finally breaks? If todays bounce is for real, where do you see it getting to before it's likely to breakdown again?
    Thank You,
    Mike

  2. Corey Rosenbloom, CMT Says:

    Mike,

    Rather than descending triangle, I see the entire move as a Mirror Image foldback pattern.

    But honestly, I don't think it matters what pattern we use to describe the break under 1,040 if it occurs – it will most likely be harsh. It's all about supply/demand – and a sustained close(s) under 1,040 significantly changes the dynamics of the balance.

  3. MadScientist Says:

    Corey – Thanks for this timely analysis of the positive divergence. Much appreciated.

  4. yorsh Says:

    oups

  5. Corey Rosenbloom, CMT Says:

    Haha – no oops!

    Price never broke above 1,050 to confirm the reversal, and after we did get the expected bounce, we had negative divergences in the three market internals, signaling a non-confirmation of the high.

    We have to follow market internals all day – and they turned lower before the sharp sell-off.