Quick Checkup of Current Market Breadth and Intraday Trendlines

Jan 18, 2011: 2:33 PM CST

For the quick-reflexed traders among us, here is a current intraday update of the state of the SP500 5-min chart when compared with declining breadth/internals and the competing rising price trendlines to use as a reference for potential future trade set-ups.

Let’s see it:

Keep in mind the Higher Timeframe structural reference level at 1,300 – as I mentioned in today’s previous post on Weekly Levels to Watch.

What we like to do as traders is keep in mind a higher timeframe reference level (target) and then monitor price as it interacts with (comes in contact with) that key level – in this case, 1,300.

We want to look deeper at such factors as internals (Breadth – above), Momentum, Volume, and even Sentiment (bullish/bearish) as clues to whether we believe price will continue on to break through the higher timeframe level, or if it will indeed pause and reverse/retrace from this level.

This quick mid-day update focuses only on Breadth, on an interesting observation we’re seeing at this moment.

Namely, Breadth (the difference in stocks positive on the session vs those negative for the session) is negative (at the moment of this post) while reaching new recovery highs today, just shy of the key 1,300 level.

That’s a non-confirmation signal which then turns our attention to the rising intraday trendlines as drawn – namely at 1,290 and then the tiny one here (which contained price all day) at 1,295.

Divergences are CONCEPTS and structural components – they are NOT trade entry signals.  They just say “cautioun” or serve as non-confirmations.

To trade, you need price signals such as the breaking under rising trendlines, moving averages, reversal candles, or whatever trigger you use.

I just wanted to call your attention to the following facts:

1.  Price is just shy of the key 1,300 level
2.  Internals are weak as prices challenges this level
3.  BUT price so far remains in a powerful uptrend as it comes into this level

However, as we’re all aware, price is king, and I’ve shown frequent examples of the Popped Stops play/concept, which has been a dominant factor of the current bull market that began in 2009.

If sellers cannot capitalize on this traditional/classic signal of potential retracement/reversal (and if buyers do not decide to take profits near 1,300) then we could have yet another upside breakout which would trigger even more Popped Stops on a price breakthrough beyond 1,300.

That’s why we watch key inflection points – not to predict the future with 100% certainty (no one can) but to monitor price in conjunction with a reference level and then plan unbiased IF/THEN statements that play of the two contingencies – of a reversal/inflection down from 1,300… or a surge/breakout beyond 1,300.

In the “Battle for 1,300,” let’s pay close attention to who wins here – buyers or sellers and plan accordingly (quick reflexes may be needed!).

Corey Rosenbloom, CMT
Afraid to Trade.com

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2 Comments

2 Responses to “Quick Checkup of Current Market Breadth and Intraday Trendlines”

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