May 18 Checkup on Bullishly Diverging Market Internals

May 18, 2011: 11:03 AM CST

What are the “Big Three” Market Internals saying about the current structure in the S&P 500?

Let’s take a look:

I shared this chart in yesterday’s Idealized Trades member report, and we’re already seeing the bullish follow-through today that was suggested from the picture in Market Internals.

To recap, the “Big Three” Internals are Breadth, TICK (Extremes), and VOLD (Volume Difference of Breadth).

All Three are forming positive divergences with respect to Tuesday’s swing low at 1,320 which suggests a bullish resolution that already appears to be underway this morning.

Given this initial bullish strength this morning, the key now will be watching the falling trendline that connects the upper swing highs that ends near the 1,335 region – where we are at this moment.

Further bullish breakouts will confirm that a further/continued upward swing is expected, and that yesterday’s “breakdown” was another mean Bear Trap.

Otherwise, watch out if this morning move up is all we get from the bullish internals position – watch if we begin to head lower from the 1,335 trendline.

For educational reference, I also highlighted the most recent situation where all three internals were negatively divergent – right ahead of the sharp down-move at the beginning of May.

You can see how the divergences developed, price broke the rising trendline (signal), and the resulting follow-through to the downside.

Internals never guarantee a future move, but they can be powerful indicators of the next likely market swing/reversal, so it’s always a good idea to watch these in conjunction with developing price structure.

Corey Rosenbloom, CMT
Afraid to Trade.com

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2 Comments

2 Responses to “May 18 Checkup on Bullishly Diverging Market Internals”

  1. Terlyn12001 Says:

    I wonder if this is wave 4 of C of an ABC pullback.

  2. Greg Nail Says:

    I wonder if this is the second portion of a bull flag after having a pole and an ABC pullback.