Midday Market Internals Show Possible Positive Swing Up
Friday’s Mid-day check on market internals shows a powerful positive internals divergence in breadth, TICK, and VOLD – which suggests we could see some positive price action yet to come.
Let’s take a look at the chart and note the prices that would confirm or disconfirm this signal:
(Click for full-size image via chart.ly)
As I show in my mid-day market internal updates, we’re seeing the ADD (Breadth), TICK (NYSE TICK),and VOLD (Volume difference of advancers – decliners).
All three are showing a clean and clear positive internal divergence with the new index low under 1,070 today – which serves as a NON-confirmation of the price low and hints that we could be seeing a potential price reversal to the upside.
What level would confirm that? Notice the EMA structure which is bearish and visualize a trendline connecting the prior swing highs.
The trendline and the EMAs converge at the 1,075 level on the 5-min chart, so if we see any bullish move above that level, it would further increase the odds of a continuation upside swing.
Of course, any breakdown under 1,070 again would disconfirm this signal and advocate for a trend continuity instead of reversal.
Internals (positive) vs Trend (negative): Which will win-out?
Position and monitor accordingly.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade
How can you expect anything other than the 'dead cat bounce' we've witnessed in every other rally….
Good question!
That's why I labeled the expectation a “positive swing up” instead of a 'reversal' up.
As day traders, we can take advantage of as many turns in the market as possible, and given what we're seeing in internals at this very moment, odds favor an upward swing. We'll exit when negative divergences or other sell signals form if we get the upward move.
Playing it swing by swing intraday.
Indeed, it's all about your trading timeframe. A typical bounce from these levels and conditions could make for a nicely profitable trade, even if we've tipped into a downtrending market on an intermediate or long term basis.
Put another way, taking short positions here could be very painful, even if they were to end up being a good trade 3-6 months from now.
The divergences have built up nicely here, and the bearish positioning was getting a bit overdone, it seems. Time for a shakeout and then reassess as we reach 1100-1110-ish.
Nice post today. Looks like the Right Shoulder hasn't fully played out yet. So an upleg and then a bigger down one…
What about the possibility of a May 25th gap down (hard), and then a rally back up?