Author: Joe Mertes

Stock Indices Pause Just Above Important Key Reference Area

The Stock Indices broke out on Wednesday. Since then, the SPY and QQQ have paused just above important support. The IWM is yet to breakout. Volume is low and the other internals are diverging. However, this is not uncommon in a rotational pattern. The pause for the last two days offer good trade location in terms of a multi-timeframe breakout. If there is a move higher, it will be extremely important for the internals to strengthen to support the move. If support, that was resistance, is traded through, it will suggest the potential for a rotation lower. On the other hand, if the uptrend is to continue, we will need to see additional gains soon.

Stock Indices Hit All-Time Highs As Internals Weaken

The Stock Indices saw follow-through to yesterday’s breakout move higher. However, the internals weakened significantly. This may simply be suggesting a pause is developing after yesterday’s rally. However, if price drops below very important support, it will suggest the breakout was false and we could see another rotation down to the next level of support.

Stock Indices Breakout Higher

The Indices, except for the IWM broke out above important resistance today. While volume increased slightly, market breadth declined, which was a little surprising. With that said, if there is continued follow-through tomorrow, it will be important for breadth to expand and volume to continue to increase to support the breakout rally. Watch for any divergences in the first hour of trading tomorrow that could signal a possible test of support.

Hot PPI Numbers Bring Out Buyers

A long time ago, I stopped trying to predict the reaction of the market to news events. I try to recognize when a news event is about to happen but prefer to rely on the Market telling me its determination of whether the news is bullish or bearish. Although, it was a little surprising to see the recovery from the pre-market session that was down initially. Market internals have still not strengthened as the Indices approach an important Key Reference Area. Tomorrow’s reaction to CPI numbers will be critical to the next greater degree time and price move.

Stock Indices Fail On Opening Gap

The Indices opened higher today but the gap was quickly closed due to another day of extremely low volume. While breadth opened strong, it eventually collapsed as well. PPI numbers are out tomorrow morning and CPI is out Wednesday morning. The Market is likely pausing at important resistance to determine the impact those numbers will have on the perception of value.

Stock Indices Grind Higher As Internals Weaken

The Indices closed this week attempting an assault on the all-time highs. However, volume continues to collapse as market breadth declines. The percentage of stocks above their 50-day and 200-day moving averages are diverging as well. While the Spiders have exceeded a three-step equality, the QQQs and IWM are still within that strategy. If there is going to be a breakout to new highs, the internals must strengthen. On the other hand, if there is another rotation lower, the lack of selling pressure must be overcome, otherwise we will simply be stagnant in a rotational pattern for a while.

Volume Continues To Decline

While buyers are attempting to drive price of the Indices higher, volume continues to decline. There is simply no selling pressure right now. This enables a low volume rotation higher. While the countertrend rotation may be developing into something different, if we are going to breakout, volume will need to increase.

Stock Indices Pause At Important Key Reference Area

The Market had an opportunity to begin another leg lower at the open today but there was simply not enough selling pressure. This allowed the Market to rotate back up to important Key Reference Areas. Volume collapsed once again as market breadth continued to decline. The three step strategy I have developed is still a good possibility, unless the Indices trade much above yesterday’s high.

Market Internals Continue To Weaken

While the Indices were up slightly today, they are still within the Key Reference Area of equality discussed in yesterday’s Briefing. Along with that, the market internals continue to weaken. If this is developing into a new leg higher, volume will have to begin to increase substantially.

Stock Indices May Be Completing A Countertrend Rotation

The Stock Indices appear to have completed a longer-term countertrend rotation. Volume is collapsing suggesting buyers are running out of steam. What would suggest this is not the case is trading higher than today’s close and volume beginning to increase. Tomorrow could be a very important day in determining whether we are going back to the highs or another rotation down is in the offing. On any higher high, watch volume carefully.