SP500 Breaks Resistance on Declining Market Internals – A View Inside

Feb 18, 2010: 2:42 PM CST

The S&P 500 cracked the key 1,100 resistance level, and it was met as expected with a surge of “popped stops” as bears threw in the towel – which serves as another example of “what happens when key resistance is broken?”

However, we’re not seeing the classic signs of strength that accompany strong price breakouts… but does that need to be the case in the current altered financial landscape?

Do old rules still apply?  Let’s take a look.

S&P 500 30-min:

I wanted to do a quick post highlighting the “Popped Stops” (short squeeze) burst that came just a few minutes ago (it looks more compelling on the 1-min and 5-min chart).  Price spent the last two days ‘flirting’ with the key 1,100 level, touching, pausing, retreating, advancing, pausing, and finally the breakthrough surge.

Interestingly enough, all of this ‘surge’ right now is occurring on low relative volume, momentum, and Market Internals.

The middle panel shows the Breadth peaking at the 2,000 level on Tuesday, February 16th’s highs along with the VOLD (Volume Differential), while the intraday TICK high peaked at 1,285 on February 12th.

Taken together, this is a negative market internal divergence which serves as a non-confirmation of the highs.

We see that a positive Market Internal divergence foreshadowed/forecast the lows on February 5th (compare both charts of SPX and SPY), but this time we’re not seeing signs of a top.  Interesting.

When something “Should” happen and it doesn’t, then it often means that a more powerful move in the opposite direction is around the corner – usually from those investors/traders stopping out (covering their short positions, which helps drive the market higher in “positive feedback” mode).

Watch for potential continuation to the upside.

Let’s now add volume, and see the SPY chart.

SPY 30min:

I’ve heard traders (even on TV) complain on how weak the volume has been during this rally, and we see it above in the SPY Exchange Traded Fund.

SPY volume (intraday) peaked around the February 5th to 9th frame as buyers swooped in to pick a bottom (and shorts covered to take profits).

Since then, volume intraday has trailed off steadily.

It’s just one of those puzzling things that drives traders crazy, but allows professionals to capatilize on inefficiences and unexpected moves by playing long as price breaks key resistance levels and short-sellers throw in the towel, further creating upside momentum.

Refer to February 16th’s post on the “1,100 Resistance Level to Hold or Break,” and also:

Lessons From Failed Signals and Popped Stops

What Happens when Resistance is Broken?”

Opportunities from Popped Stops Intraday

Corey Rosenbloom, CMT
Afraid to Trade.com

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

9 Comments

9 Responses to “SP500 Breaks Resistance on Declining Market Internals – A View Inside”

  1. * Fibozachi * Says:

    good look, Corey … note the 1-min ADV lines today of US equity indices … 14:15 through 14:20 was a lovely quant block on the INDU and NYSE TICK.

  2. Corey Rosenbloom, CMT Says:

    Good call!

    I'll have to to a follow-up post later this evening on market internals during the day. Strength especially in the VOLD prior to break, and you're right about the 1-min.

  3. Dan de Man Says:

    Hey Corey! We're right on the 50 day and the US dollar has jumped in the aftermarket. This may cause a lot of traders to cash in their chips tomorrow. Who knows, maybe we can make some easy money shorting gold stocks tomorrow LOL.

    Have a great night!

    Dan

  4. SantaCrude Says:

    Corey,saw this today and was Thanking you for teaching it to me! What about the big sell off after the close, was expecting about 1/4th of that, WOW! Thanks again!

    Richard Grissom

  5. * Fibozachi * Says:

    good look, Corey … note the 1-min ADV lines today of US equity indices … 14:15 through 14:20 was a lovely quant block on the INDU and NYSE TICK.

  6. Corey Rosenbloom, CMT Says:

    Good call!

    I'll have to to a follow-up post later this evening on market internals during the day. Strength especially in the VOLD prior to break, and you're right about the 1-min.

  7. Dan de Man Says:

    Hey Corey! We're right on the 50 day and the US dollar has jumped in the aftermarket. This may cause a lot of traders to cash in their chips tomorrow. Who knows, maybe we can make some easy money shorting gold stocks tomorrow LOL.

    Have a great night!

    Dan

  8. SantaCrude Says:

    Corey,saw this today and was Thanking you for teaching it to me! What about the big sell off after the close, was expecting about 1/4th of that, WOW! Thanks again!

    Richard Grissom

  9. Odds Favor Correction by Looking at SP500 Market Internals | Afraid to Trade.com Blog Says:

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