Midday Check on Market Internals Apr 6

With over half the trading day behind us, let’s take a quick check on the pulse of the three key Market Internals for mid-day April 6, 2010.

For internals, we monitor the:

1.  ADD – “Breadth” (NYSE Advancers – Decliners)
2.  TICK (NYSE) for extreme highs and lows
3.  VOLD (NYSE) Volume of Advancers minus Volume of Decliners

The S&P 500 creeped to a new recovery high today at 1,188, but it did so on weakening market internals in all three indexes.

All internals are up on the session from the morning gap-down and – with the exception of breadth – are signaling strength in the market as as confirmation, hinting that higher prices are likely.

Remember, a ‘breadth divergence’ means that fewer stocks are ‘net advancing’ on the day when comparing index price highs – breadth divergences are important in terms of participation of stocks in new index highs – price and breadth should make new highs together.

While we’re seeing bullish signals when comparing price of today’s morning session to afternoon session, we’re seeing a much more bearish picture when comparing market internals to the past few days.

Specifically, a Breadth Extreme high was made on the morning of April 1st at a net positive difference of 1,892 advancers, hinting that higher prices were yet to come (and they did).  This was confirmed with a TICK extreme high and then followed up on the close of the session with a VOLD extreme high (of 670,000).

Since then, all internals – with the exception of yesterday’s ‘end-of-day’ spike in the TICK – have trailed lower, signaling non-confirmations.

To recap – when internals make new highs, it signals that odds favor higher price highs yet to come.

When higher price highs come but internals deteriorate (diverge), it signals a non-confirmation and odds favoring a retracement/reversal swing.

As such, keep focused on the two rising trendlines I’ve drawn at the 1,085 short-term support level (also 50 EMA on 5-min chart) and then the 1,083 trendline support as drawn.

I know all this ‘range-bound business’ is frustrating, but we have to play with the hands the market deals us each day.

Corey Rosenbloom, CMT
Afraid to Trade.com

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