Market Internals Warn of Sudden Reversal SPY Mar 3

Mar 3, 2010: 3:24 PM CST

Yet again, we’re seeing a situation where we have a multi-day decline in the three-key market internals when compared with the price of the S&P 500 or SPY ETF.

That sets up a major non-confirmation and increases that odds that we’ll see a price reversal/retracement to test lower levels, barring any unforeseen bullish news here.

We’re seeing the 5-min SPY (or SPX or @ES) chart when compared with Breadth, TICK, and Volume Differential.

For more information on these ‘internals,’ see prior posts:

March 1 Mid-Day Check on Market Internals

Odds Favor Correction by Looking at Market Internals” (Feb 22)

In fact, we’re in the same boat as we were back when I wrote the February 22nd “Odds Favor Correction” post, so take a look at that and you can see the downside resolution that came next.

As a reminder, here’s what happened last time (an update from the Feb. 22 post):

Remember, divergences warn of likely reversals/retracements, but never guarantee them.

The situation is best to take profits if long, hold neutral if your are a risk-averse trader, or consider shorting to profit from any potential downside action if you are a more aggressive trader.

Notice the trendline violations I’ve drawn.  While we could get a bounce or pop off the $112.00 level (looks that way) which is a ’round number’ support and prior swing low from yesterday, odds would shift dramatically to favor downside action if sellers took price under $112.00, so watch that level very closely.

Remember that divergences are like a rubber band that has been stretched, and sometimes when the rubber band – or a market – snaps back, the resolution can be violent, so be prepared in the event history repeats.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

12 Comments

12 Responses to “Market Internals Warn of Sudden Reversal SPY Mar 3”

  1. terlyn Says:

    I also noticed a two-day double top on QQQQ I believe, for at least a short-term downturn. Plus, rounded reversals become doji's, and this would make the second in a row after the recent uptrend from a few days of doji's just before this recent mini-rally.

  2. lcs1956 Says:

    The timestamp on your blog is off by one hour.

  3. Remix Trades Says:

    Hey Corey,

    I did notice all the divergences you mentioned today, but I believe the cream of the crop was the Yen futures divergence (which I believe you may have mentioned in a recent post) . As the S&P 500 reached intraday highs, the Yen also reached a fresh intraday and weekly high. All in all, that just does not add up very well because upward movement in the Yen usually points to risk-aversion.

    If you were watching the forex stream at StockTwits.com, you probably got annoyed of me re-twitting myself multiple times regarding these divergences :p. And any1 who has been following your blog should have made money in the markets today.

    Rafael (RemixTrades)

    i

  4. Corey Rosenbloom, CMT Says:

    Thanks for letting me know! I should have seen that earlier. I'll try to go in and correct it.

  5. Corey Rosenbloom, CMT Says:

    Good call! I often miss looking at the other indexes than the SPY/SPX until someone reminds me of a neat pattern to look at.

    That's also good thinking there too! The intraday structures we see – rounded reversals included – do build the daily candles, and in this case, they built doji candles on the higher timeframes, which underscores the 'bearish' nature of what comes next after a rounded reversal.

  6. Corey Rosenbloom, CMT Says:

    Good call also, Rafael!

    These divergences are critical to watch, and I enjoy seeing the internals divergences now more than the momentum divergences – but you're right, there were divergences across the board. I just don't look at FOREX charts enough during the day and usually save those for evening analysis if I hear of or see anything interesting. I'll take a look at all those and your updates.

    Don't feel bad about discussing divergences! They do matter, but the problem is that price can keep extending after a single divergence, but it's like pulling a rubber band. Price can't extend forever and it's going to have to resolve at some point (similar to a diminished chord in music that has to resolve).

    Keep up the great work!

  7. terlyn Says:

    I also noticed a two-day double top on QQQQ I believe, for at least a short-term downturn. Plus, rounded reversals become doji's, and this would make the second in a row after the recent uptrend from a few days of doji's just before this recent mini-rally.

  8. lcs1956 Says:

    The timestamp on your blog is off by one hour.

  9. Remix Trades Says:

    Hey Corey,

    I did notice all the divergences you mentioned today, but I believe the cream of the crop was the Yen futures divergence (which I believe you may have mentioned in a recent post) . As the S&P 500 reached intraday highs, the Yen also reached a fresh intraday and weekly high. All in all, that just does not add up very well because upward movement in the Yen usually points to risk-aversion.

    If you were watching the forex stream at StockTwits.com, you probably got annoyed of me re-twitting myself multiple times regarding these divergences :p. And any1 who has been following your blog should have made money in the markets today.

    Rafael (RemixTrades)

    i

  10. Corey Rosenbloom, CMT Says:

    Thanks for letting me know! I should have seen that earlier. I'll try to go in and correct it.

  11. Corey Rosenbloom, CMT Says:

    Good call! I often miss looking at the other indexes than the SPY/SPX until someone reminds me of a neat pattern to look at.

    That's also good thinking there too! The intraday structures we see – rounded reversals included – do build the daily candles, and in this case, they built doji candles on the higher timeframes, which underscores the 'bearish' nature of what comes next after a rounded reversal.

  12. Corey Rosenbloom, CMT Says:

    Good call also, Rafael!

    These divergences are critical to watch, and I enjoy seeing the internals divergences now more than the momentum divergences – but you're right, there were divergences across the board. I just don't look at FOREX charts enough during the day and usually save those for evening analysis if I hear of or see anything interesting. I'll take a look at all those and your updates.

    Don't feel bad about discussing divergences! They do matter, but the problem is that price can keep extending after a single divergence, but it's like pulling a rubber band. Price can't extend forever and it's going to have to resolve at some point (similar to a diminished chord in music that has to resolve).

    Keep up the great work!