Market Internals Sell Signal Prior to Dec 3 Afternoon Selloff

Bycjrosen

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

Similar Posts

|

A Euphoric Rally into Collapse Lesson from Square SQ

Bycjrosen

Here’s one for the lesson books – Square (SQ) had a euphoric or parabolic rally that gave way to the all-but-inevitable snap-back crash straight into a key support price. Here’s the Euphoric Rise that gave way to the Stellar Collapse: Square (SQ) is a new stock that you may not have traded yet but it’s…

|

SP500 Breaks Resistance on Declining Market Internals – A View Inside

Bycjrosen

The S&P 500 cracked the key 1,100 resistance level, and it was met as expected with a surge of “popped stops” as bears threw in the towel – which serves as another example of “what happens when key resistance is broken?”

However, we’re not seeing the classic signs of strength that accompany strong price breakouts… but does that need to be the case in the current altered financial landscape?

Do old rules still apply? Let’s take a look.

|

Trading Crude Oil with Divergences into Key Levels

Bycjrosen

How can momentum divergences help your trading style?  Simple – by providing early warning signals of market reversals. But divergences alone aren’t enough to trigger a trade. Let’s see another example of one of my favorite trade set-ups that played out recently in Crude Oil, and of course what levels we’re targeting now. First, take…

| |

Three Trading Lessons from October 1 Intraday Rounded Reversal

Bycjrosen

How do you recognize an intraday “Rounded Reversal” developing in real time? Let’s take a look at the near-textbook example from October 1st and learn three factors that tend to precede – or trigger – an intraday Rounded Reversal or “Failed Trend Day” pattern. Here’s the 5-min @ES Futures chart with the three main factors…

5 Comments

  1. 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. 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. 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. Pingback: Chartanalyse : S&P 500 - Seite 51 - Aktienboard

  5. 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.

Comments are closed.