Up until the middle of the week, the NASDAQ led the rally with the S&P slowly catching up and the Russell stagnant. However, the market internals were strengthening, as discussed in the weekday Briefings. After Wednesday, the NASDAQ took a turn lower, the S&P paused and the Russell exploded higher. How those intermarket divergences resolve themselves will be interesting to see. On the other hand, the number of shares in all of the Indices covered trading above their 50 and 200 day moving averages moved substantially higher, showing an internal strengthening. Keep in mind, CPI numbers and a Fed announcement are on Wednesday. Anything can happen.

Today, the Stock Indices broke above important resistance based on two news events. The positive part is breadth expanded nicely and the number of stocks trading above their 50 and 200 day moving averages expanded nicely. While the Market finished the day extremely overbought, I have to anticipate some type of pause or rotation to work off the overbought condition. A divergence in market breadth on any higher high, could suggest that pause is beginning. Volume is still not as strong as I would like to see, but it needs to build on higher prices.

I have introduced a few new charts that I believe will really help in analyzing the internal strength or weakness of price trends within the Stock Indices. As you will see in the Briefing, based on previous price levels and internal strength, the Indices are rising on fumes. Volume is still critically low and it appears the Index valuations are simply a few highly weighted stocks driving price. If the internals do not strengthen on any additional rally, the risk is increasing to the downside.

The Stock Indices sold off today and closed below important support levels. Those levels are now resistance. As discussed in yesterday’s Briefing, the internals were not confirming the breakout higher. This led to the decline today. Tomorrow’s price action will be very important to the next greater degree time and price move.

As I have discussed in previous Briefings, if the Indices are going to breakout of the current trading range, volume should be increasing. As you will see, volume actually declined today as price faltered. This gives me concern over the breakout and its viability.

The Stock Indices basically paused today after yesterday’s strong breakout. The negative to the move is breadth in all of the Indices is declining. That will make a continuation of the rally difficult if it does not change. While it is common for a financial instrument to breakout and then retest the breakout point, if support does not hold, it will suggest the move is a false move and rotation down will be a higher probability. Watch support levels carefully next week. They must hold on any reversals.

As you will see in the Briefing, the Stock Indices have paused in multiple timeframes, especially as demonstrated by the SPY. The pauses are all at the upper extreme of a longer-term pause. This means breaking out to the upside should usher in a very good move higher, as long as it is accompanied by increasing volume. On the other hand, breaking short-term to the downside opens up testing lower support levels. Market internals are continuing to weaken, but the chop continues.

As you will see in the Briefing, the Stock Indices tested the upper extreme of a multiple timeframe rotational pattern on Monday. The rest of the week was spent rotating lower to test the lower extreme and bouncing off of it today. The rally was strong in terms of price development and market breadth certainly supported it. However, volume is declining once again coming into resistance. If there are higher prices on Monday above today, watch for a divergence in breadth that could signal a pause or rotation back down.

The Fed announcement is behind us and initially traders felt the comments were bearish for stocks as the Indices traded lower to test short-term support. It is common for traders, after a Fed announcement, to come back the next day with a different interpretation of where value is. Therefore, being at important support, what happens tomorrow morning will be very important to the intermediate-term move.

While there are mixed signals from the Stock Indices, the SPY and QQQ appear to be attempting an upside breakout. Total volume on both Indices appears to be increasing as the upper extremes are being tested. Earlier this week there was an attempt to break through the lower extreme but it failed. The important question on Monday is whether there will be follow-through. There is an important news event with the Fed meeting next week, and that can change the perception of value.