As you will see in the Briefing, the Stock Indices have been in an area of rotation for almost two months. The NASDAQ has been extending its gains, but the other Indices are reluctant to follow.

While the rotation has continued, last week saw Stocks rotate at the upper extreme of the longer term rotation. This is often the case before a financial instrument makes a breakout move. Therefore, the extremes of last week should give us great areas of trade location.

A break above the upper extreme will suggest a breakout in a longer term timeframe, assuming the market internals are confirming. A break to the downside will suggest simple rotation lower to possibly test the lower extreme. Use patience and wait for a break. It is very easy to get chopped when the markets are in simple rotation.

DAILY BRIEFING 200525 from Joe Mertes on Vimeo.

When a financial instrument or Index is unsure of whether value is higher or lower, they pause. Often times, it is those pauses that give us the best indication of the next greater degree move. As of today, except for the NASDAQ, the Indices are paused and testing the lower extreme of that rotation. While the trading range is large and tech is on fire, the majority of the Market is in rotation.

As of the close on Friday, the structure of each move supports lower prices, not higher. However, that can change. The key to the next greater degree move will be breaking last week’s lows early in the coming week. If that does not happen, then the probabilities will change in favor of another rotation through the range and a test of the upper extreme.

The Russell and Transports have signaled weakness in the past before the other Indices. They are showing more weakness now. Watch them carefully. If they begin to break down, the other Indices will follow.

DAILY BRIEFING 200516 from Joe Mertes on Vimeo.

While it appears Stocks are surging and the NASDAQ certainly is proving that correct, the other Indices are in a pause phase. More importantly, the structure of the current rotation is still weak and continuing to weaken. NYSE volume is the weakest it has been since the beginning of March. Breadth continues to deteriorate and the number of stocks breaking out to make new highs has not budged.

In analyzing the markets, all we can do is use the analytical tools we have developed. Those tools tell us the majority of stocks are in a rotational pattern and fewer and fewer shares are being traded each day. This suggests extreme caution.

Because there is no strength to drive the majority of stocks higher, excepting the NASDAQ, the risk is to the downside. Buyers are scarce. Sellers are nonexistent for now. Should the selling begin, it could be very fast and furious as fear of testing the March lows becomes obvious.

DAILY BRIEFING 200509 from Joe Mertes on Vimeo.

The Stock Indices all started a selloff at the end of the week. However, other than extremely negative breadth, volume still continued to decline, suggesting the move is not yet impulsive. The NASDAQ and Russell are now testing very important support and breakout areas, while the S&P has traded and closed below support. The Dow Industrials and Transports have both failed to trade above resistance.

This brings us to the first part of next week. Trading will begin with the Indices at an extreme oversold condition. This suggests some type of pause is possible. The support/resistance levels discussed in the Briefing are extremely important. If there is a continuation of lower prices, volume will need to increase to confirm it is becoming an impulsive move. If it does not, then the higher probability is a continuation of this slow grind higher.

DAILY BRIEFING 200502 from Joe Mertes on Vimeo.

The Stock Indices continue in a countertrend move higher. There is no information from the Market that suggests this is not countertrend, at this point. In fact, as you will see in the Briefing, the Market Internals continue to deteriorate. The result has been a very important rotation pattern that has given us excellent areas of trade location and triggers to suggest the next greater degree move, which should be extensive.

For the last two weeks the resistance levels discussed in these Briefings have held. The rally on Friday should be looked at with much skepticism. With that said, we can only analyze the development and structure of price based on data coming from the Market. Just as price structure warned of an impending move lower, no one could have predicted the extent of that move down to the March lows. It was a news event that drove the selling. I anticipate the possibility of another move lower, assuming there is no other news that changes the perception of value. There is simply no volume in this market as price struggles to move higher.

DAILY BRIEFING 200424 from Joe Mertes on Vimeo.

Markets are always in search of value. Information comes into the market and can change the behavior of Market participants and that will have an effect of price discovery. Last night information was released on the start-up of the US Economy. That information changed the perception of value in trading today. However, when you analyze the internal structure of the rally, it does not necessarily change the strategy.

Intermarket divergences still exist. Only the NASDAQ has traded above upper resistance. The S&P is at resistance and the Russell has not reached it. Volume is still low and declining. I was a little surprised to see how lackluster volume was in today’s trading. The Indices are moving from extremely oversold to overbought in one trading day, suggesting there are no building blocks of stocks within the Indices. Finally, new highs in both the NYSE and NASDAQ have not budged.

I am looking for some indication of structural strength in this rally. At this point, and it can change, there is none. The analysis will change when the internals change.

DAILY BRIEFING 200417 from Joe Mertes on Vimeo.

One more important piece of information came from the market today. While the move down was not impulsive, the Russell and Transports did turn down and closed below the lower range of the last three trading days. In previous instances they have signaled a turn down. The NASDAQ is still showing more strength. Unemployment numbers are out tomorrow. Unless there is good news, which I doubt, the higher probability is another test of the lows. That can change, if the information from the market changes, but as of now the higher probability is for another leg lower.

DAILYT BRIEFING 200415 from Joe Mertes on Vimeo.

As discussed in last night’s Briefing, the rotation up off the of the recent lows still has the characteristics of a countertrend move, suggesting at least one more leg to the downside. Today, the NASDAQ and S&P both reached the upper resistance. More importantly, as discussed last night, the Russell and Transports did not confirm the move in the other Indices. Remember, they have signaled turning points previously.

Volume continues to fall on each move higher. This is very concerning. Therefore, until any move higher begins to show some internal strength, use caution on long positions and good stop management.

DAILY BRIEFING 200414 from Joe Mertes on Vimeo.

The rotation down in the Stock Indices today was not an impulsive move. From a longer term basis, the rotation off the lows still appears to be countertrend, suggesting another test of the lows is the higher probability. However, they may still have slightly more upside work to accomplish before that begins. The NASDAQ was the stronger of the Indices today with the Russell and Transports weaker. Keep in mind, the Russell and Transports signaled a possible turn down at the all-time highs.

Volume on the move lower was very weak and the Indices went from an extremely overbought condition to extremely oversold in one trading day. That suggests there may be more upside work to accomplish. Watch the Russell and Transports closely. If they continue to move lower, it will suggest the others will follow and the move could become impulsive. Until that happens, use caution.

DAILY BRIEFING 200413 from Joe Mertes on Vimeo.

Trading in the Stock Indices was extremely important on Wednesday and Thursday. While the probability of testing the lows is declining, the Market gave us some interesting information in which to analyze in the coming week. I am reminded that trading is being long. Trading is being short, and trading is standing aside. That is my position until the Market gives me a little more information. I believe that will be resolved the first part of the coming week.

The range of the Indices at the end of the week was very important. Volume exploded on Thursday in the NYSE but price did not explode with it. This meant there were as many buyers as sellers. Demand was being met with supply. Therefore, buyers were not able to drive the market substantially higher. This happened on the last two trading days. Therefore, in the short-term, the range of the last two days is extremely important. A break of those extremes will give the next short to intermediate term move. At times, volume like this can signal larger money selling into a high.

DAILY BRIEFING 0200408 from Joe Mertes on Vimeo.