Quick Charting the Post Fed Rally with Market Internals

Dec 30, 2013: 2:46 PM CST

Let’s take a quick holiday week peek under the bullish price action to view the end-of-year message from current S&P 500 Market Internals.

S&P 500 Market Internals

We’ll take the chart step-by-step.

We focus on price action – particularly key levels – for structure, targets, trade-planning, and trade management.

After the Federal Reserve’s December ‘surprise’ (see prior posts:  “Comparing Daily Volatility and the Fed Day“), the US Equity Markets have rallied non-stop from December 18th.

Market Internals – seen here with NYSE Breadth ($ADD), NYSE TICK ($TICK), and NYSE Volume Difference of Breadth ($VOLD) – showed two bullish spikes or signs of strength that confirmed the breakout and suggested additional upside price action was likely.

Price action did indeed drift higher, pushing above all-time highs in an upward intraday drift throughout last week’s holiday week.

Later, price peaked (at least short-term) into the 1,840 index level on December 27th only to trade slightly lower – this brings us to the current picture.

We look to Market Internals for signs of strength (green) which suggest additional continuity but also divergences (which is what we’re clearly seeing now) which suggests to take profits and adopt a more defensive/cautious trading posture.

While it’s important to study Market Internals – essentially the mixture or stocks advancing or declining at a given moment in time – we also put the signals in the context of a bullish seasonal period (the end of year holidays) and the typical end-of-year price action ahead of the official end of 2013 (squaring positions).

Nevertheless, we continue to note the “rounded arc” pattern with price relative to the lengthy stretch of declining highs – divergences – in all three key Market Internals.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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