Market Internals Sell Signal Prior to Dec 3 Afternoon Selloff

Dec 3, 2009: 10:48 PM CST

I wanted to call attention to an article written today by the Fibozachi website entitled “It’s 3:27… Sell!” which was also republished at Zero-Hedge.

I’ll let the full post explain the charts, but the main idea is that market internals, including the Advance-Decline Line, UpVol – Down-Vol, and TICK started to make new lows on the session prior to the afternoon sell-off – attributed to the ISM Manufacturing data missing expectations… or a sell-off ahead of Friday’s “Jobs Report.”

The VIX also broke a trendline and rose prior to the worst of the selling.

The article shows how to combine quick analysis of key market internals with the S&P 500 (or other major equity index) to form a larger picture of what the internals are hinting about potential future price direction.


(Click for full-size image)

The main idea is to compare the blue lines across the SPY price – top graph – and the market internals in the lower panels.

I am using the “Show-Me” tool in TradeStation to show – with a red dot – a new low on the day for each indicator and price.

I’m showing the classic “Breadth” in panel #1, the NYSE TICK in panel #2, and the Volume Difference (of up and down stocks) on panel #3.

In each case, the internals broke to new intraday lows about 10 minutes prior to price making an absolute new low on the session ahead of the ‘waterfall’ move down into the close.

$VOLD (Volume Difference) started making new lows at 3:00 EST on the session, and then the TICK and Breadth both made their intraday lows at 3:30, while the SPY hovered slightly above its morning low of $111.03.

This could have been construed as a ‘double bottom’ test off support, but those who were following market internals closely (this comes with experience), would have seen an entirely different picture – that of deteriorating market internals across all major measures and might be waiting instead for a break of support to get short.

According to Fibozachi’s post,

“Watching the market internals on a 1-minute basis can be extremely valuable to intra-day traders (especially those who scalp futures) as warning signs within these internals almost always lead actual price action on the ES (S&P 500 futures, current basis December, ESZ09) by just a full second or two.”

Good call!  The key is knowing how to read the internals and their ‘subtle’ signals intraday so as to capitalize on their potential leading signals intraday.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

5 Comments

5 Responses to “Market Internals Sell Signal Prior to Dec 3 Afternoon Selloff”

  1. Marc45 Says:

    In hindsight your analysis looks great but what about the low that happened just after 9:30? Trading that low would have been a loser (unless you stuck with it until EOD).

    I'm trying to understand how you would trade today's action.

    thanks

  2. Corey Rosenbloom, CMT Says:

    That's the point of these types of end-of-day summaries – learn generalities and patterns and make connections to apply to future days when said patterns repeat.

    The 9:30 bar had odds of continuation to the downside due to new internal intraday lows as well as price lows, but we did not get follow-through from those.

    As an aside, there was a positive momentum divergence, bounce off the 200 period SMA, and bounce off a swing low from yesterday's closing action.

    The main idea from this post is that sometimes internals can be leading signals of what's to come in price – not always – though nothing is absolutely certain.

  3. Marc45 Says:

    In hindsight your analysis looks great but what about the low that happened just after 9:30? Trading that low would have been a loser (unless you stuck with it until EOD).

    I'm trying to understand how you would trade today's action.

    thanks

  4. Chartanalyse : S&P 500 - Seite 51 - Aktienboard Says:

    […] Chartanalyse : S&P 500 http://blog.afraidtotrade.com/market…rnoon-selloff/ Market Internals Sell Signal Prior to Dec 3 Afternoon Selloff I wanted to call attention to an […]

  5. Corey Rosenbloom, CMT Says:

    That's the point of these types of end-of-day summaries – learn generalities and patterns and make connections to apply to future days when said patterns repeat.

    The 9:30 bar had odds of continuation to the downside due to new internal intraday lows as well as price lows, but we did not get follow-through from those.

    As an aside, there was a positive momentum divergence, bounce off the 200 period SMA, and bounce off a swing low from yesterday's closing action.

    The main idea from this post is that sometimes internals can be leading signals of what's to come in price – not always – though nothing is absolutely certain.