Author: Joe Mertes

Stock Indices Rise On Weakening Internals

There are glaring divergences between price and the structure of the current uptrend. Additionally, inter-market divergences exist. Volume is extremely low, suggesting the rally is not attracting additional buying pressure. Typically, price will correct to the internals. However, there is a low probability the internals will correct to price. This typically occurs around a news event. Unless that happens, the risk is to the downside.

Inter-market And Internal Divergences

I will be traveling the rest of this week and will not be able to record a Briefing. However, if anything significant develops, I will update in writing.

Important things happened today. The Industrials and S&P finally broke out. However, the Russell and NASDAQ are still lagging. Internal divergences occurred today. If they persist, it could be a warning of a deteriorating structure. One day is not significant in terms of internal divergences. On the other hand, if they persist, the result will be some type of countertrend rotation.

Stock Indices Test Important Resistance

The Stock Indices tested important resistance today but failed to breakthrough. Inter-market divergences exist, but more importantly, are the divergences in the internals. While some of the Indices are at all-time highs, the number of stocks making new highs is declining and new lows are increasing.

This is an important Key Reference Area. I suggest using caution on long positions. With that said, there is no real selling pressure. Yet!

Market Internals Extremely Weak. Price Diverges

The S&P and NASDAQ made slight new highs over Friday. However, the market internals were extremely weak. Additionally, the Russell was showing price weakness. These internal and inter-market divergences give me some concern. Unless they are eliminated tomorrow within the first hour of trading, it could lead to another leg lower. If the internals do not strengthen, the Russell may give an early warning signal of more downside for the other Indices.

Market Internals Strengthen Going Into Friday Close

Surprisingly, the market internals strengthened going into Friday’s close. That strength brought a surge in prices. Additionally, on Thursday the Russell formed a double bottom, along with positive divergences in the S&P and NASDAQ. This all suggests there should be follow-through on Monday. However, if breadth is weaker than Friday, expect a possible rotation down. If the rally that started on Thursday is to continue, it is imperative for the internals to continue to confirm price development.

Stock Indices Perform As Anticipated In the Briefing

As discussed in last night’s Briefing, the Stock Indices made a new low on stronger breadth. This was a clear signal of strength, signaling some type of move back to the upside. The rotation up, as of today’s close, suggests it is countertrend. If there is a high above today’s high, breadth should be increasing. If it is diverging, expect another rotation down. On any move above today’s high, breadth and volume should be increasing.

Stock Indices Have Late Day Selloff And Reach Important Support

The Russell had a significant downturn today. The S&P is testing an important support level. The NASDAQ is close to the S&P but showing more strength. While the afternoon selloff was significant, and the Indices closed at their lows, there are still inter-market divergences, and the market internals are not very weak. That can change tomorrow. On any lower low, it will be important for breadth to weaken. If it does not, expect a pause or rotation back up due to the price being at short-term support.

If the March 19 lows are broken, the next level of support is significant at the March 4-5 lows.

NASDAQ Holds Support On Extremely Weak Internals

As discussed in the weekend and yesterday’s Briefing, the Stock Indices were showing significant signs of internal weakness and inter-market divergences. This led to a selloff in today’s trading with the Russell leading the way lower. The NASDAQ was quite interesting today. The market internals were extremely weak, but price held up better than any of the other markets. If there are lower prices in the morning, monitor market breadth carefully. Any divergences will suggest a rotation back up. If the NASDAQ isn’t trading lower, then it may be signaling more strength coming into the markets.