Quick Checking Market Internals for April 4th

Apr 4, 2011: 1:38 PM CST

What do current market internals say about the stock market as we teeter at new recovery highs?

Let’s take a quick look at the current multi-day structure and signals:

Don’t panic when you see this chart – let’s take it step-by-step.

First, we see the S&P 500 Index and the current stair-step rally from the March 16th low.

Under that, we have the “Big 3” Market Internals that serve as Confirmation/Non-Confirmation:

NYSE Breadth (Number of Advancing Stocks minus Declining Stocks on the session)
NYSE TICK (Stocks at a given moment ‘ticking’ up minus those ‘ticking’ down)
NYSE VOLD (Up minus Down volume of Advancers and Decliners – like Breadth but with Volume)

What’s the signal?

Non-confirmation and caution – safety while under the 1,344 breakout trigger level.

That’s not to say stocks won’t break to new highs, but the ‘internals’ or “looking under the hood” are currently flashing a signal of caution and greater attention to your positions.

Namely, Breadth was strongest at the earliest part of the rally (confirmation) which forecasts higher prices to come.  Now that we have those higher prices, Breadth has trailed off and leveled near the 1,500 region (staying at the 2,000 region for three days early in the rally).

VOLD (Volume of Breadth) is showing a very similar picture with a flattening at the 500,000 differential level and lower than the initial 700,000 levels that were commonplace off the lows.

TICK is where it gets more interesting though.

I’ve posted recently about “TICK Compression” (that TICK compresses with Volatility so adjust your parameters accordingly) and that’s what we’re seeing now.

At first glance, you would see this as a negative TICK (high) divergence when in reality it’s a lengthy TICK compression in both highs AND lows due to lower/reduced volatility.

If you want to read more about that – particularly for intraday traders – see my recent posts:

The Recent TICK Compression” March 22

“Why You MUST Consider Volatility When Trading with the TICK”

“Research in Behavioral Changes in the TICK Over the Last 10 Years”

What’s interesting is that TICK lows expanded Friday and today, breaking down under the rising trendline.

That’s akin to a “Kick-off” or “Hidden Sign of Weakness” signal and it’s something bulls will need to watch as a caution sign and bears may rest their hopes on this potentially bearish signal leading to a retrace down against the overhead 1,340 resistance area.

So in summary, the picture from VOLD and Breadth are for caution, and the TICK shows a potential hidden sign of early weakness in price.

PRICE will need to confirm these signals, and should the market break-out to new highs on stronger internals, it would be a buy-signal for “Popped Stops” (bears rushing to exit via short-squeeze) though until that happens, the market is clearly in “caution” mode on the intraday frame until we get a firm move down under the horizontal 1,320/1,325 region or up above the breakout 1,345 highs.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

3 Comments

3 Responses to “Quick Checking Market Internals for April 4th”

  1. lou Says:

    great stuff corey

  2. VicPatel Says:

    Yeah, Cory. Got your book the other day. It is pretty good. Actually your blog caught me eye because, my trading methods are very similar to what you teach. I basically try to catch WV 2 or B and WV 4 retracements using zigzags, flags and Gartley/Bat patterns and setting targets using Fib Extentions. Also like to fade the fifth wave to about the 38% retracement on MACD divergence . I see you like to use the 3/10 oscillator. I acutally seem to do well with the 5/34/5 setting. Anyway Good Trading.

  3. Bullishcartel Says:

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