Today’s Briefing may prove to be very important. I discuss three bearish technical patterns that if played out will have projected at least an intermediate term countertrend move lower. I do caution. Those patterns are not viable until certain levels are broken. Also, price development and price structure suggests there is more downside work to do. All of this will be negated by trading above a certain level outlined in the Briefing.

If there is downside work still ahead of the Indices, it should not delay too much longer.

For the last two weeks I have been discussing the internal weakness of the current uptrend in stocks. Beginning yesterday, with follow through today, the Indices may be in the process of developing into a greater degree time and price countertrend move lower.

Today, volume increased as price moved higher. Breadth did not get to an extreme low, allowing for more downside movement. All of the Indices, except the Dow Industrials are at important short term support and they closed at the low of the day, suggesting more downside on Monday. Breaking those support levels will then open the higher probability of at least an intermediate term move lower to test support.

Monday and Tuesday’s price development and internal structure will give us important information as to the potential price correction.

I hope everyone had a great 4th of July week. It was a very low volume week and anything could have happened. As it was, Stock Indices traded higher and continued into this past week. As you will see in the Briefing, the development of price is up. However, just as we saw back in September before the correction, the internal structure of that trend is collapsing. Add to that the non-confirmation of the Dow Transports and Russell, and you have all of the indications on another impending countertrend move. While it is impossible to exactly time the turning point, the Market does send us signals. Those signals are about as strong now as they were before the September to December correction.

DAILY BRIEFING 190713 from Joe Mertes on Vimeo.

In analyzing the development of price in any market or index, it is important to understand the strength or weakness of that trend. In September of last year and in May of this year, I suggested both times the internal strength of the rally was weak and continuing to weaken. Both of those led to significant selloffs.

It is only logical, when the internals of a market or index begin to weaken, it is only a matter of time before price will correct. While there is always a smaller percentage of time the internals will correct to price, it is typically a result of a news event. With the Fed announcement out of the way and a variety of possible bad news announcements, caution should be warranted in the coming week.

Intermarket divergences are becoming more exacerbated. A strong trend should take most all stocks with it. The indices are not confirming the trend, nor is market breadth that continues to decline with each push higher.

Next week should give us enough information to determine if there is more downside work to accomplish.

DAILY BRIEFING 190621 from Joe Mertes on Vimeo.

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.