A Quick Check on March 5 Market Internals on the Breakout

With the Dow Jones at new lifetime highs and the S&P 500 similarly breaking a resistance level to new recovery (but not all-time) highs, what does the snapshot of Market Internals reveal about the breakout?

Let’s take a quick mid-day look on the message, starting with the 30-min view:

Cutting straight to the point, BREADTH is confirming the breakout with a slight new indicator high relative to the prior activity with today’s current reading of +1,667.

The last time we saw a value that high was as February began with a spike/breakthrough rally similar to the current environment.

Strength in internals – a confirmation – tends to forecast a continuation of the price movement while weakness – non-confirmation – tends to suggest a possible short-term reversal (as was the case with the February 21st and 26th inflection).

We are getting mixed signals, however from NYSE TICK and NYSE Volume Differential (VOLD), both of which show no confirmation of the breakout (note the highlighted ‘rectangle’ pattern).

The 10-min lower frame chart may reveal a clearer picture:

Again we can see short term combination divergences higlighted clearer on a lower frame chart.

The recent short-term inflections (reversals) of February 21,  26, and 28 all showed triple divergences in the “Big Three” Market Internals.

TICK actually is showing a slight negative divergence on the breakout and VOLD – at least at the moment – is also weak and not surging higher like Breadth.

It’s a caution or “watch closely for follow-through” signal, so be sure to monitor real-time developments closely.

Look for any sudden weakness under 1,540 else keep in mind that a positive feedback loop – where buyers buy to enter the market and short-sellers buy to exit the market – can propel price higher quickly despite chart-based signals that argue for caution.

You can view recent posts on Market Internals for additional reference (and for what happened next) here:

February 20: Market Structure and Internals after Sell-off

February 13: Divergent Market Internals and Triangle

January 24: Market Moves from Stability to Instability

Corey Rosenbloom, CMT
Afraid to Trade.com

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