The Stock Indices were basically driven by news events relating to stimulus being on and then off. This resulted in a lot of volatility. However, on Friday the Indices broke out to the upside. While the trend in price for the week was up, the structure of that trend is questionable. Market breadth is declining but new highs continued to increase. Volume was extremely low on the breakout. The Transports and Russell, which normally signal a potential rotation lower, were leading the way higher.
While we can analyze the information the market gives us and develop good trade strategy, the continuation of news events can change the perception of value on the part of traders quickly. As an example, market breadth is diverging with higher prices. The trend higher is not sustainable, if breadth continues to weaken. However, if there is positive news, the divergence in breadth can change to support price.
As a result of the above, the first part of next week will be extremely important in determining whether the breakout is going to be sustained or if there will be rotation back through the range. The Briefing outlines important support levels that if broken will suggest that rotation is occurring.
DAILY BRIEFING 201010 from Joe Mertes on Vimeo.