The Stock Indices have paused, suggesting traders and investors are unsure whether value is higher or lower. This is likely a result of the very weak internals on the rally off the recent low. Volume has collapsed, market breadth is declining on each attempt to rally and important intermarket divergences still exist.
It is often the case, when a market breaks out of an area of rotation like it is in now, the breakout move is very good and very sharp. However, there is a smaller percentage of time when a breakout will occur in the direction of the previous intermediate trend (In this case up), but it occurs on weak internals. In this case some traders are trying to reignite the trend but if additional buyers fail to follow, it is quickly retraced. If that occurs, it is a bearish event. Alternatively, a break below support levels would be an indication another leg down is beginning.
DAILY BRIEFING 190614 from Joe Mertes on Vimeo.
The rally off the June 3 low is certainly impulsive in terms of price development. However, there are some real questions on the internal strength of the move. First, the Transports and Russell signaled the correction off the September 2018 high, and they signaled this correction. Currently, they are not confirming the rally and lagging by a substantial amount. There is no Dow Theory confirmation. Finally, volume is falling and market breadth is declining. The Indices are extremely overbought.
As always, the trend of price must be respected, but it should be viewed with some skepticism until the divergences discussed above begin to be eliminated. The beginning of next week should be very telling in terms of the next intermediate degree time and price move.
DAILY BRIEFING 190607 from Joe Mertes on Vimeo.
From a purely technical aspect, the Stock Indices appear to be reaching an important low, where we could see a bounce. Important support levels are being approached which allows for additional downside on Monday. However, if there is a divergence in Breadth, it will suggest at least a short term bottom is intact. Volume is still extremely low for a move down like this. The Briefing compares volume at this low with the low of December 24, 2018. There is a significant difference. While price suggests an impulsive move, the internals are not really confirming that. Longer term, Breadth is beginning to strengthen. As of today’s close, the Indices are oversold.
With that said, if you look at the December 24 low, there was a “flushing” of the market. High volume at the low suggested sellers had been flushed out and that is when the buying began. That could certainly be the case also on Monday. Watch for either event.
DAILY BRIEFING 190531 from Joe Mertes on Vimeo.
The intermediate term analysis has not changed as of the end of trading today. Intermarket divergences still exist with the Transports and Russell signaling the higher probability of lower prices as they did at the end of September. The NASDAQ is showing more weakness and appears to want to trade lower next week. Only the Dow Industrials and S&P are not showing as much weakness.
While any news over the holiday weekend can change the perception of value by traders, I expect we will see lower prices next week in the Indices. The one issue that gives me concern is normally in a countertrend move lower, volume will increase as investors move to the sidelines quickly. This trend lower is on extremely low volume and it continues to decline.
Short term, the Indices are sporting a series of lower highs and lower lows. Unless or until those are broken, there is a greater possibility of renewed selling next week. However, once this intermediate term countertrend move is complete, it will offer a tremendous buying opportunity.
DAILY BRIEFING 190524 from Joe Mertes on Vimeo.
The low of today in the Stock Indices is very important. Breaking it will open the higher probability of a significant short-term move lower. The next level of support, discussed in the Briefing, will be even more important and could suggest an impulsive move.
The question facing us on Monday is whether the Indices are beginning to develop another leg lower, or if the rotation down today was simply a countertrend move off the recent lows.
The Russell, NASDAQ and Transports all closed at the low of the day. Remember, the Transports and Russell first signaled the last countertrend rotation down. Only the S&P and Dow Industrials held off the low. Market breadth was negative and declining all day, even as the Indices tried to rally. Volume increased slightly and new lows increased.
Important to the short term will be today’s low. Should the market trade and close below the low today, it will suggest the probabilities are beginning to increase for more downside.
DAILY BRIEFING 190517 from Joe Mertes on Vimeo.
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.
DAILY BRIEFING 190513 from Joe Mertes on Vimeo.
Today’s rally was spurred by an excellent jobs report. Structural divergences still exist but for today, the divergence in market breadth was eliminated. Going into the close the Indices were extremely overbought, suggesting the potential for a pause on Monday to work off the overbought condition. Based on the extent of today’s rally, I am surprised breadth was not stronger, which gives me a little concern, but that can change.
The Indices are at a decision point. Either they continue to move higher and the structure will strengthen to support price, or today’s rally will be looked at as a one day wonder. If there is a pause on Monday, how that develops will be very important.
DAILY BRIEFING 190503 from Joe Mertes on Vimeo.
Intermarket divergences are now appearing. Market internals are still weak and appear to be weakening. While this has been the standard for the last few weeks, at some point in time, if the divergences are not eliminated, and if the internals do not strengthen, there will be a greater degree time and price correction.
Most concerning is market volume and market breadth. Both of those are trending lower, especially volume. If more volume does not begin to come in, it will be difficult for price to continue higher. Once the buyers exhaust themselves, it is only a matter of time before price stalls and profit taking begins.
As always, the trend of price must be respected, until important support levels are broken, as discussed in the Briefing. Also, there is a possibility the internals will strengthen to support price. Until that occurs, use caution on your long positions.
DAILY BRIEFING 190426 from Joe Mertes on Vimeo.
Today, the NASDAQ made a new all-time high. This was accomplished on negative breadth, declining volume and declining new highs. The S&P did not make an all-time new high but its internal structure is just as weak as the NASDAQ. Add to that, the Industrials are unable to extend higher and follow the Transports, and it appears the Russell may have started a decline.
Just as I stated in the Briefing at the end of September, when the market internals weakened so much, the Indices were at risk of a greater degree time and price correction, so it is now. Certainly, the internals can strengthen to support price but until that occurs, I would be very cautious on all long positions.
Note the support levels in the Briefing. If they are broken, expect selling to accelerate. If there is a significant news event, it will take a large one to strengthen this market and send prices higher.
DAILY BRIEFING 190417 from Joe Mertes on Vimeo.
As you will see in the Briefing, it is important to understand the development (trend) of price and its structure (strength). This week, the Stock Indices were basically in rotation at an important resistance level. Today, the S&P broke above that resistance, but not followed by the NASDAQ and Russell. What is more concerning is the still lack of volume. It did tick higher today but the current level suggests some risk of the rally faltering. Additionally, market breadth is not strengthening. New highs are beginning to move higher, but the overall market still appears to be structurally weak.
Based on the above, if there is any continuation to the rally, we must see volume increase. More buyers must come into the market. Also, the majority of stocks need to begin participating. If not, the risk is still to the downside. What happens in Monday’s trading will be very important. The market is neither overbought nor oversold. However, it does appear to be tightening, suggesting a larger move may be coming.
If there is any move higher without a strengthening of the structure of this rally, it should be viewed as suspect.
DAILY BRIEFING 190412 from Joe Mertes on Vimeo.