A MidDay Check on Divergent Market Internals SPY March 1

Let’s take an afternoon look at the ‘popped stops’ rally of March 1st, which shows divergences in Breadth and TICK – both important non-confirmations going forward.

SPY 5-min Mar 1:

First, let me state that divergences in internals do not guarantee reversals, but they signal non-confirmations of price highs which serve as ‘caution lights’ or warning signals to take bullish profits and be on the alert for any weakness.

That being said, we’re looking at the SPY (could be the SP 500 Index or @ES Futures – the picture would be identical) on the intraday frame.

We’re seeing Breadth – Advancing Stocks minus Declining Stocks – then the TICK, and then $VOLD – Volume Difference between Advancing and Declining Stocks as our internals.

As price sneaked its way to the three most recent swing highs (notice the green dots – an indicator in TradeStation to highlight “New High for the Day”), we’ve not seen those highs confirmed with the TICK or Breadth.

The rising action in the VOLD is not surprising, given that 1,700 more stocks are advancing than declining right now (net), so thus volume readings – as measured by VOLD – would be increasing, so we’ll discount that.

What is surprising – and does serve as a deep non-confirmation of the index/price highs – is the Breadth Divergence.  Fewer stocks are positive on the day on each subsequent push to new highs than were at prior highs.

With TICK, the story is the same – fewer stocks are ‘ticking up’ at new price highs than prior price highs.

It’s worth noting that it’s unusual for price to continue rising in the face of such divergences, so be very careful in any long/buy positions, and be ever vigilant for any opportunities to short weakness under $111.60.

Corey Rosenbloom, CMT
Afraid to Trade.com

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