Midday Check on SP500 Market Internals Feb 11

Let’s step inside the recent retracement rally and view the current state of the three key “Market Internals” and what clues those internals are revealing.

SP500 Market Internal Glance:

(Click on image for full-size view)

Before looking at the current state of the Internals, let’s take a moment to see why watching internals with price is helpful.

The top panel – $ADD – is the “Breadth” or Advancers minus Decliners.

The middle panel is the old-fashioned NYSE TICK.

Finally, the lower panel is the VOLD – Volume Difference (volume of advancing stocks minus volume of declining stocks).

Many times, a divergence with price and market internals will forecast a reversal swing, as seen two times on the chart above on February 2nd and February 5th.

The February 2nd rally back to 1,100 ended on a Negative Divergence.

The February 5th decline under 1,050 ended on a Positive Divergence.

What’s happening now?

We’re in a consolidation/correction/rally phase with a slight negative divergence forming in internals, though that’s not quite locked into place because price has not yet – as of noon EST Thursday – formed a new rally high above 1,080.

Thus we can’t yet technically call it a ‘divergence,’ but we are not seeing ‘hidden strength’ in the internals either.

The main idea going forward is that we would need to be bullish if internals broke the swing highs I have labeled with a vertical line, which include:

1,992 more stocks advancing than declining in Breadth
677,000 more shares in Up Volume than Down Volume in VOLD

Until then, market internals are giving us a muted, cautious stance as price struggles to test the 1,080 level.

Corey Rosenbloom, CMT
Afraid to Trade

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