The S&P 500 continues – so far – to trade within the boundaries of a trading range, as I mentioned in this morning’s post.

Let’s take a look under the hood to the NYSE Market Internals on the S&P 500 during the recent rally to see what clues the internals show:

(Click for full-size image via Chart.ly)

Monday morning brought an expected move up into the upper resistance area at the 1,100 level, though the market is showing deteriorating market internals as we test that resistance boundary high – that’s not bullish.

Specifically, Breadth peaked early June 10th at 2,324 with the SP500 at the 1,080 level, while today’s high at 1,105 recorded a NYSE Breadth reading of 2,133 – classic non-confirmation.

TICK peaked late Friday at 1,570 with the SP500 at 1,092, and today’s high records a TICK extreme (high) of 1,225.

The divergence is most clear in VOLD – Volume Difference of Advancers and Decliners.

VOLD peaked into Thursday’s close at 1,329,000 (SP500 at 1,087) and is now at the 301,000 level as of this writing (less than today’s intraday high of 354,000).

Thus, all key market internals (intraday) are at lower peak levels while the index has pushed on to new highs.

Divergences do not mean that price is required to reverse, but it hints that you should watch price very closely if you are a rampant bull right here.

This is not the domain of the bulls while we’re under 1,110 – so that will still be the key level to watch for an upper “Line in the Sand” for the market.

The fact that divergences are forming at this level decrease (but not eliminate) the odds of an upside breakout … and that is the assumption to have unless we see either a pick-up (rise) in corresponding market internals… or a firm break above 1,110 (which should be met with rising internals).

Corey Rosenbloom, CMT
Afraid to Trade.com

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