The Stock Indices rallied today into important resistance. Interestingly, as they approached those levels, the buying began to wane. Market internals are still diverging. There is a Fed announcement next week that will certainly have an impact on the determination of value. Anything higher than a 25 basis point increase could cause problems for the rally. However, if they are able to trade, close, and hold above resistance then the next levels of resistance are outlined in the Briefing.
Author: Joe Mertes
Stocks Trade Higher On Weak Internals
The Stock Indices continued to rally in an attempt to fulfill the longer-term potential countertrend move from all-time highs. However, as discussed in last night’s Briefing, the market internals are still not supporting the rally. There is a Fed meeting next week and an announcement on interest rates. The Market is obviously pricing in a quarter-basis point move. This may be a “Buy the rumor, sell the news” event.
Stock Indices Recover From Opening Loss
The Stock Indices today opened lower and appeared there was going to be a good selloff. However, they recovered nicely in terms of price development. The problem is the market internals are still not supporting price. Unless there is a news event that strengthens the internal characteristics of the current move, there is risk of a good selloff.
Stock Indices Pause After Reaching Short-term Overbought
As of last night, the Indices were slightly overbought. This led to some type of pause or rotation lower to work off the overbought condition. While the open appeared to be developing into a move lower, buyers stepped in an the result was a pause for the balance of the day. That pause offers good trade location. However, longer-term the market internals are deteriorating.
Stock Indices Rally On Expanding Breadth
The Stock Indices continued the rally from Friday. Breadth expanded nicely supporting the move. However, volume declined as they progressed but then increased as there was a slight turn lower. 410 is important resistance in the SPY along with 350 in the QQQ. The Market is slightly overbought but that would not preclude it from moving higher tomorrow.
Stock Indices Decide To Continue The Rally
In yesterday’s Briefing, I said the Indices appear undecided about whether they were going higher or lower. Today, it appears they resolved that conflict. The SPY and QQQ both traded and closed above resistance. More importantly, Breadth strengthened nicely to support price and volume increased as well. This leaves intact the possibility of a greater degree countertrend rotation higher. In the SPY the next upside support is 410. Above that is equality in the 440 area.
Stock Indices Are Undecided
While the Stock Indices were lower today, volume as not increasing and Breadth diverged on a daily basis. The end result is after the last two days of selling, the move is not becoming impulsive. Just as I warned at the recent high the Market internals were diverging, they appear to not be supporting the move lower. Although, that could change tomorrow. If there are lower prices, look for internal divergences. If the move is supported by the internals, look for a pause at lower support levels.
Diverging Internals Weigh On Price Development
As discussed in last night’s Briefing, the Market internals were diverging, suggesting the trend in price was weakening and to be aware of the possibility of some type of move lower. The move today was significant. The Market closed at the low of the day, suggesting it wants to go lower. Market internals supported the move but it did not reach an oversold condition. If there is a lower low tomorrow and Breadth is diverging, expect some type of pause. If Breadth is lower than today, expect a continuation of today’s downtrend.
Market Internals Diverge Along With The Dow
The SPY and QQQ both made higher highs over the previous trading day. The Dow Industrials were down substantially with only six components trading higher and the rest selling off. Add the fact that Market Breadth is declining and volume is falling off and you have a precarious situation. PPI numbers are out tomorrow. While the intermarket and internal divergences exist, if those numbers are bad, it can change the internals to support the current rally. The Market is looking for bad economic news in hopes the Fed will stop raising interest rates.
Stock Indices Continue To Rally On Weakening Internals
As you will see in the Briefing, the Stock Indices continued their rally into today. However, as discussed in last night’s Briefing, the internals continue to diverge. Price development suggests the longer-term analysis of the rally being part of a countertrend move from the all-time highs is on track. Price structure suggests it may not make it that far, unless the internals stop weakening. In any event, we now have good support and resistance levels to monitor.