As I have discussed in previous Briefings for the past few weeks, the market internals were signaling a weakness in the rally and that some type of countertrend move was a greater probability. Over the last few trading days, we have seen that come to pass. Additionally, I discussed the potential for a greater degree time and price countertrend rotation, correcting the longer term move off the December low. That also has occurred.
The question now is whether the move down is coming to an end or still has legs. Important to the analysis is the fact that volume decreased below Friday’s in today’s trading. That may signal the possible exhaustion of sellers. Breadth reached an extreme negative level today, but did not show any signs of strength. While volume is only one component of the Index internals, it will be important to see if other internals begin to show divergences as well, or if volume increases on any additional move down.
Most important in tomorrow’s trading will be to watch market breadth. Stronger breadth on a lower low will signal some type of countertrend move up may be starting. Tomorrow will be extremely important.