Author: Joe Mertes

Stock Indices Break Support On Diverging Internals

As discussed in the last few Briefings, I am concerned over the lack of internal support on the current downtrend, especially volume. Volume in the Index ETFs and total volume continue to decline as price declines, suggesting the market is strengthening internally. While the decline appears to be impulsive in terms of price, it is not from an internal basis. Stock Indices broke to the downside in the short-term today and traded through important intermediate support before finding a stopping point and rotating. In the last thirty minutes of trading, buyers came in and then drove price back above those support levels. That was a surprising move based on the extent of the rally. Next week should be a very interesting week.

Stock Indices Pause In Choppy Day

Overall, the Stock Indices spent most of the day in rotation. However, as discussed in last night’s Briefing, the Market opened lower today on diverging market breadth suggesting more strength. The result was a rotation back up and then mostly chop the balance of the day. While the last hour brought more selling, I have concern over the low volume in the last two days. The one benefit of today’s chop is it gave us short-term areas of trade location for tomorrow.

SPY And IWM Break Through Short-term Resistance

Both the SPY and IWM broke through resistance today and strong market breadth. It was a broad-based rally for stocks. The QQQ lagged. It did test resistance but failed to follow the other two in extending gains. Coupled with that intermarket divergence is the fact that volume was extremely low and continuing to decrease. With that said, price development must be respected. However, it is important to remember it takes volume to continue a trend. Watch for higher highs tomorrow, but use caution if breadth is not as strong as today and volume is still low.

Stock Indices Begin to Strengthen Internally

Between yesterday and today, the Stock Indices are beginning to show some strength in the short term. Breadth is strengthening along with net volume. As you will see in the Briefing, the Indices are stair stepping lower. This makes the rotational pauses very important for trade location. I cannot rule out a greater degree rotation up at this point, but the internal strength over the last two days suggests that is possible. The Briefing outlines important short-term resistance levels that if broken would suggest a greater degree time and price rotation is occurring.

I will be traveling this weekend and will not have charts to prepare a weekend Briefing. The next Briefing will be Monday evening.

Stock Indices Break Support

The Stock Indices broke near-term support today. There was a slight divergence in market breadth, but based on the closing today, I expect that divergence has a good possibility of being eliminated tomorrow morning. If not, expect a rotation up to test important resistance. The Indices closed at the low today, suggesting more follow-through tomorrow. If there is another thrust lower, it could signal the beginning of a very impulsive move lower.

Stock Indices Pause For Two Days

As you will see in the Briefing, the Stock Indices have paused for two days. This gives us good short-term support and resistance areas. Today’s trading worked off some of the oversold conditions. Breadth was stronger than yesterday, suggesting a limited decline. However, this does not preclude more aggressive selling tomorrow. The key will be breaking short-term support or resistance. Also, the SPY and QQQ have reached countertrend equality, which could suggest some type of possible bottom, if support holds tomorrow.

Stock Indices Extend Losses On Extremely Weak Internals

The Stock Indices extended their losses today. Key to the move was the extremely weak internals. Additionally, they extended lower below important support and closed well below it. Markets run and pause in all degrees of time. Therefore, we reached an extreme oversold condition at today’s close. This suggests the potential for a pause or some type of rotation higher. With that said, there is nothing to keep this market from flushing out all the sellers with a substantial capitulation move.

Stock Indices Continue To Pause At Extremely Important Support

The Stock Indices continue to trade in the area of very important support. As you will see in the Briefing, trading much below Friday’s lows will suggest the possibility of a breakout lower in a greater degree of time and price move. Additionally, it appears the internals of the market are continuing to weaken with Thursday being the weakest internal day in quite some time. While there is always a possibility of a continuation of rotation up, unless the internals strengthen on the up moves, they are simply countertrend to the last thrust down that started at the end of March. Make no mistake. The current lows are extremely important.

Stock Indices Retest Support

As discussed in several Briefings, the Market spends most of its time in rotation and that is exactly what happened between yesterday and today. Important is the fact lower support areas are once again being tested. The internals confirmed the selloff today but it was orderly. Because breaking support opens up the possibility of a greater degree time and price move lower, we could see accelerated selling. On the other hand, the Market reached a point of being extremely oversold today, suggesting some type of short-term rotation up or pause to work off some of the oversold condition before selling begins again.