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.
As traders and investors, we must trade the information the market gives us. However, at times it is diligent to look back on previous experiences and then begin to look for other clues as to the strength of a trend. With that said, the Stock Indices appear to be topping, once again. If you remember a few weeks ago, I warned the Indices appeared to be ready for a larger timeframe countertrend rotation. That occurred twice. Once again, the information from the market suggests a possible weakening of the trend.
My biggest concern is Volume. Total NYSE Volume is collapsing. New highs are beginning to decline and market breadth appears to be faltering. While we may still see higher prices on Monday, the Market is overbought. Attention should be paid to a possible continuing of internal weakness. If the structure of this trend does weaken, there will be some type of countertrend rotation lower. The degree of time and price can only be seen, if and when important support levels are broken.
DAILY BRIEFING 190405 from Joe Mertes on Vimeo.
Price development of the Stock Indices appears to be struggling to move higher. That is mostly a result of extremely low volume coupled with decreasing market breadth. New highs are not expanding, even as price grinds higher. However, new lows are not moving either. Therefore, unless the internals change, there is likely more risk of a downside move at this point.
The Briefing outlines important support levels that, if broken will suggest something greater in degree of time and price is occurring.
DAILY BRIEFING 190329 from Joe Mertes on Vimeo.
Approximately two weeks ago I discussed the potential for a greater degree time and price countertrend move in the Stock Indices was a growing probability. A week ago it appeared the price move was beginning. That was to be foiled by the NASDAQ and S&P moving to new recent highs. However, as I pointed out, the Russell and Dow Transports failed to confirm the move. Additionally, market breadth continued to decline and even was negative for a day as both the S&P and NASDAQ move to higher highs. Volume was collapsing, giving us the anticipated selloff on Friday.
As of Friday, the Indices are extremely oversold in both short and intermediate term. While they closed at their lows on Friday, which suggests more selling to come on Monday, I have to expect some type of pause to the move lower to work off the oversold condition. The key will be in market breadth. If it diverges on any lower low, it is a clear signal to expect some type of rotation back up. How that rotation up develops will give us a good indication as to whether Friday’s selloff is complete or not.
Finally, watch the Russell. As I point out in the Briefing, it appears to be close to completing a three step countertrend move. If that is the case, it could give us an early warning as to the completion of this move lower. Important support and resistance levels are discussed in the Briefing.
DAILY BRIEFING 190322 from Joe Mertes on Vimeo.
While the price of stocks overall continues to grind higher, the internal structure is weak and weakening. The greater degree time and price countertrend move may still be in the process of developing as you will see in today’s Briefing. Market breadth is declining. Volume is declining, but skewed from Friday’s quadruple witching. If you eliminate Friday’s volume, it does not paint a good picture. Up volume is falling and down volume is increasing. More importantly, the inter-market divergences are becoming more pronounced.
The trend of price continues higher, especially in the NASDAQ. However, keep a close eye on the Dow Transports and the Russell. If they both begin to trade below near term support, it could suggest another leg down in the correction is beginning. Needless to say, I am cautious here, but we have to respect the trend of price.
DAILY BRIEFING 190315 from Joe Mertes on Vimeo.
As discussed in the Briefings over the last two weeks, the Stock Indices were giving signals of a potential greater degree time and price countertrend rotation. Volume broke down first, followed by market breadth. Now, new lows are beginning to increase, as new highs stall.
In Wednesday’s Briefing I discussed one of the characteristics of a countertrend move and projected a possible support level for both the SPY and QQQ. Those levels were reached exactly at the end of trading on Thursday. Friday’s employment numbers gave some added fuel to the down move. However, as I pointed out market breadth diverged, signaling some type of rally was possible. That is exactly what occurred on Friday.
There are two possibilities for the coming week. The first is a continuation of a move higher for a second leg of this corrective move prior to another leg down. The second is the low on Friday completed the countertrend move and we are headed back to recent highs. The Briefing outlines important resistance areas. If those are broken, the probability of another leg down is diminished. If they hold, look for another leg lower before this is complete
DAILY BRIEFING 190308 from Joe Mertes on Vimeo.
Markets trend in all degrees of time. A downtrend in one timeframe may simply be a countertrend move or pause in a greater degree timeframe uptrend. Certainly, the Stock Indices are in a longer term uptrend from the December lows. While that trend has had runs and pauses, we have to anticipate some type of greater degree time and price countertrend move may be in the offing.
Analyzing the structure of the trend can give us an indication as to whether it is strengthening or weakening. The current trend does have some strong components. However, there are two cracks developing. Total volume continues to contract. This is concerning because a strong trend should attract more buyers. This is not the case. Also, market breadth is diverging more with each passing day. This means fewer stocks are trading higher as opposed to lower.
Trading and investing is a business of probability assessments. We analyze information the market gives us and we decide on a higher probability of one event occurring over another. The current information tells us there is a lower probability of a correction to the rally, but that probability can change with each passing day. Therefore, it is important to continue to analyze the structure of the rally and to monitor important support levels.
DAILY BRIEFING 190301 from Joe Mertes on Vimeo.
Price development of the Stock Indices continues to move higher. Important to that development is the fact that Market Breadth is not weak. It could get stronger, but it certainly is not diverging to the point where there is a high probability of a correction to the rally off the December lows. Also, new highs are expanding nicely, suggesting the rally is becoming broad based. The one troubling factor is still volume. At some point, new money is going to have to start coming into the Indices to keep the rally intact.
Because of the current trend, we have to be leaning toward the long side of the Market. However, I would be sure you have risk tolerances set. We have had short-term pauses, but nothing on an intermediate scale since December. Volume suggests there is still a possibility of a good correction to this rally.
DAILY BRIEFING 190222 from Joe Mertes on Vimeo.
It is always the higher probability for price to correct to the internals of the market. However, as I have discussed in many Briefings, there is always a smaller probability the internals will correct to support price. That will typically happen around a news event, where the news changes the perception of value on the part of traders.
Coming into this week, the internals of the market were very weak and not supporting price, as I discussed in the Briefings. However, with the avoidance of a government shutdown and potential trade resolutions with China, the internals have begun to strengthen. But, there is one great concern. Volume continues to fall. Unless more buyers begin to step in, the next countertrend move could be deeper than previously.
The Indices closed the week overbought. Therefore, expect some type of countertrend move to work off the oversold condition. How that move develops will be extremely important.
DAILY BRIEFING 190215 from Joe Mertes on Vimeo.