The Declining Moving Averages of Market Internals Nov 29

Nov 29, 2009: 7:21 PM CST

I wanted to share a special chart I created for this week’s Weekly Intermarket Report which takes a moving average of two different measures of Market Internals which shows a specific non-confirmation of recent highs.  Let’s take a look at these averages on the daily chart of the S&P 500 spanning back to the March lows.

What we are looking at is a 20 period moving average (High + Low + Close / 3) of “Breadth” (NYSE Advancers minus decliners) for the first line and UpVolume minus DownVolume (flowing into advancers and decliners) on the second line.

This is the same but updated chart as seen in my prior posts:

Market Internals Failing to Confirm New Highs

2008 – The Last Time We Saw Breadth Divergences Like This

A Different Look at Recent Breadth Divergences

The main idea is that the 20 period moving average reflects about one trading month and ‘smooths out’ the choppiness of pure internals.  It also helps us see the ‘trend’ a little better when comparing to price itself.

We do see divergences, both from the early April levels and the August spike after the failed Head and Shoulders.

The good news is that we’ve seen a ‘pick-up’ in the average in late November, but the bad news is that this ‘pick-up’ has taken us to ‘flat’ internals (near the zero level) as a difference between advancers and decliners.

The average is actually currently reading negative 9.

Does this mean the end of the world is upon us?

No – but it does mean buyers need to pay closer attention to this non-confirmation of market internals and price and be a bit more cautious instead of running in wildly here and chasing prices.

To keep a trend going, it’s generally accepted that we should see confirmation in market internals and volume – and we’re seeing neither of these.

Take it for what it’s worth, but it’s an encouraging sign for bears and a warning sign for bulls – but does not guarantee a trend reversal.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

6 Comments

6 Responses to “The Declining Moving Averages of Market Internals Nov 29”

  1. toddstrade Says:

    Couldn't this also be perceived as this indicator's trendline break (or test), and perhaps the staging of a new possible impulse push to the upside?

  2. Corey Rosenbloom, CMT Says:

    Greetings!

    You could interpret that as a trendline break, yes, though that type of analysis tends to work better with Relative Strength comparisons (such as looking at a stock in the upper panel and then the RS line in the lower panel). Like Google = GOOG:$SPX (in StockCharts).

    If you're right in your interpretation, then that would forecast a repeat of the breadth average trendline break as occurred in July!

    I just keep thinking breadth analysis is important and eventually will catch up with price.

  3. toddstrade Says:

    “If you're right in your interpretation, then that would forecast a repeat of the breadth average trendline break as occurred in July!”
    – Which would be a 3rd push!! haha Just thought I would play devil's advocate 😉

  4. Dan de Man Says:

    Thanks for the article Corey! Looks like a good place to swing short. If today's candle holds, there is 2 failed attempts to break thought the 10 day ema. The 3 10 macd is has a wide open sell signal too!

    Adam may be right that we are going to be in choppy markets. Not good for position traders but great for swing traders!

    Cheers,
    Dan

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