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.
As I have discussed for the last two weeks, the latter part of the rally off the December lows was weak and weakening. It continued to raise the probability of some type of rotation back down. That occurred yesterday. However, the Indices also reached a point of being oversold, suggesting some type of rotation up today was a higher probability. Two signals were given today that rotation was about to begin.
The first was trading below yesterday’s low and then back above it. The second was a glaring divergence in market breadth between yesterday’s low and today’s. Both of those coupled with the oversold condition signaled today’s move back up.
What happens the first of the week will be extremely important. The indices closed at their highs today, suggesting they want to go higher Monday. They are not yet overbought, thus allowing for additional rotation back up. With that said, if resistance areas discussed in the Briefing hold and Monday is mainly a day of rotation, it would set the scene for another leg to the downside on Tuesday or Wednesday.
It is too early to determine if this is the beginning of something larger to the downside, but with each passing day, the Market will give us more information.
DAILY BRIEFING 190208 from Joe Mertes on Vimeo.
From January 17 until January 30 the Stock Indices were in an area of rotation. On the 30th they broke out to the upside and did so impressively by moving away from resistance quickly. That move has to be respected. However, total volume is low and continues to decline, suggesting new buyers are not coming in to support the rally. Market breadth is flat. This means the number of shares trading higher is not increasing. New highs are not increasing significantly. Therefore, while price development must be respected, long positions should be monitored carefully until the internal structure of the Indices can strengthen to support current price levels. As of this writing, they are not.
DAILY BRIEFING 190201 from Joe Mertes on Vimeo.
The Stock Indices broke out of a three day area of rotation that potentially could be suggesting the next possible intermediate term move. Going into the highs of January 18, the market internals were weakening, suggesting some type of rotation down was possible. That occurred earlier this week. However, the breakout higher today came with very strong market breadth. All of the other internals are tepid. Most concerning is the falling volume on the NYSE and on the various Index ETFs.
As you will see in the Briefing, we can view all of the action in the Indices this week as being rotational. At the close today, the upper extreme was being tested. Trading into that extreme, the Indices reached a point of being overbought. While they can stay overbought, as price continues to move higher, I have to respect the fact the overbought conditions have predicted pauses in the past. How any pause or rotation down occurs on Monday will be very important.
Gold broke out today. Silver is testing the upper extreme and will need to confirm if the breakout is the beginning of a new leg higher.
DAILY BRIEFING 190125 from Joe Mertes on Vimeo.
In last weekend’s Briefing I discussed the divergences between price and the internals in the Stock Indices. That condition suggested a higher probability of some type of move lower, unless the internals strengthened. Price, in fact, did move higher each day this week and market breadth almost eliminated its divergence in the NYSE, but not so in the NASDAQ. Additionally, the other internal components continued to weaken. More concerning is the way price pushed higher and volume continued to fall off. New highs are not increasing.
All of the above leads me to be very cautious going into the next week with long positions. I have found in the past, the internals have a higher probability of predicting a turn than price. I will change my opinion of the current rally, if and when the internals support it. Until then, the risk remains to the downside.
DAILY BRIEFING 190118 from Joe Mertes on Vimeo.
It is good to be back in the saddle after a great holiday break, which was much needed. There was a lot of volatility through the holidays, which normally have very low volume days. This holiday season volume was much higher than normal. Since then, the markets appear to be laboring in their effort to continue the recent rally.
For the last three days, the Indices have been in a pause. This is after a move off of the recent lows. However, while it appears price is impulsive, the internal components are not confirming the move. In fact, the rally off the lows has many of the characteristics of a countertrend move, which suggests the higher probability is for another leg to the downside. Unless that changes, use caution on long positions.
As price has been increasing, market breadth has been declining. Volume is collapsing. New highs are non-existent in both the S&P and NASDAQ. Unless those divergences are eliminated on any additional move higher, the risk is to the downside.
The Briefing outlines the areas of good trade location for the beginning of the week.
DAILY BRIEFING 190111 from Joe Mertes on Vimeo.
This week was very interesting in terms of price development in the Stock Indices. The Fed Chairman came out with market moving news on Wednesday and there is anticipated news coming out of the G-20 meeting tomorrow. Both of those will likely move prices.
The current situation with the Indices is price action was strong this week, suggesting the countertrend move lower is complete. The problem is the internal structure of the rally is weak and potentially getting weaker. New lows are increasing once again. Market breadth is diverging from price and volume is extremely low. All of this suggests the greater probability is for price to once again correct to the internal structure. However, there is always a smaller percentage of time when the internals will correct to support price. That typically will happen around a news event, where the perception of value has changed on the part of market participants. Therefore, Saturday’s announcement from the G-20 can change everything.
If the internals do not strengthen to support price, expect some type of move back down. If the internals strengthen on Monday with any move higher, the probabilities have increased that a bottom is in and we are off to test and likely take out the all-time highs.
DAILY BRIEFING 181130 from Joe Mertes on Vimeo.
The preponderance of evidence is now leaning toward another leg to the downside. From a purely technical aspect, the rally off the lows is not becoming impulsive and suggests it is countertrend to the greater degree timeframe rotation lower from the all-time highs. Volume off the low is declining as price tries to move higher. There simply is not enough buying pressure to drive the Markets much higher. If this does not change, we could be in for another leg lower.
Next week is a holiday week and volume will be very low. Therefore, price development can be skewed.
Pundits are proclaiming this to be a buying opportunity, and it very well could be. However, right now the information coming from the market is to be cautious.
DAILY BRIEFING 181116 from Joe Mertes on Vimeo.
In Wednesday’s Briefing, I explained how it appeared the Stock Indices were strengthening slightly on the rally off the recent lows. However, I also stated I was concerned over the rally because of the inter-market divergences that existed. Not all of the Indices looked as if they were ready to rally significantly. The selloff that occurred in today’s trading could have a significant impact on the analysis for the coming week.
As you will see in the Briefing, there are indications the rally off the lows is becoming countertrend to the downtrend we just experienced. If this is the case, then there is another leg down that may be in the process of developing. This leads me to believe that what happens the first part of next week will increase the probability of one event occurring over another and lead to a large move. The key reference area to watch is Thursday’s high. If that is traded through and the internals are strengthening, I fully expect the low is in. However, if Thursday’s high holds on any rally off of today’s low or even a slightly lower low on Monday, then the probabilities will increase we are headed down.
It should be a very interesting week ahead of us.
DAILY BRIEFING 181109 from Joe Mertes on Vimeo.
The Stock Indices have completed what appears to be a longer term three step countertrend rotation lower. However, the rally off the recent lows is not as impressive as I would expect. This leads to a possibility the move lower is not yet complete. Adding to the problem is the US election on Tuesday. That certainly is an event that can change the perception of value on behalf of traders and investors. Therefore, I would use caution the first part of the week.
Shorter term, the Indices have been in a rotation for the last three days of trading. Breaking out of that rotation will likely give us more information as to the direction of the next greater degree move. Market internals are not signaling much to help either. However, volume on the move off the low has been declining, suggesting it could be countertrend to the thrust lower.
In summary, there is simply not enough information from the market in the short term to determine the direction of the next greater degree move. That should be cleared up the first part of the week.
Untitled from Joe Mertes on Vimeo.