The SPY broke out on a short-term basis today and tested longer-term resistance. The QQQ is lagging. However, the IWM on a short-term basis exploded but has a lot of catching up to do on a daily chart. Important to the current intermarket divergences is the fact the internals are strengthening nicely. As you will see in the Briefing, volume, breadth and other internals are all strengthening nicely to possibly support a breakout move. Keep in mind, there is still a possibility we could see another rotation down, but the internals are suggesting that is a lower probability.
After the CPI numbers on Tuesday, the Stock Indices surged. Since then, they have been in a pause and worked off an extreme overbought condition for the last three days. Important is the fact the internals of the market are strengthening. This would suggest a higher probability of a breakout to the upside. However, next week is a holiday week with the Market closed on Thursday. Volume, as the week progresses, will be falling. This could set up for a false breakout. Use caution as a result of the low volume next week.
It is always a higher probability for price to correct to the internals of a financial instrument. However, there is a low probability the internals will correct to support price. That typically occurs around a news event, which is exactly what happened today with the release of the CPI numbers. Price exploded in the Indices and the internals corrected to support price. For the last several days, the internals had been deteriorating while price moved higher. That is unsustainable unless the internals strengthen, and they did today. While the Market is now short-term overbought, there will likely be follow-through tomorrow. If not, monitor short-term support levels closely.
The SPY and QQQ both took out important resistance today. However, the internals are still weak and weakening, especially volume. The Russell is diverging from the other two Indices as well. This gives us a mixed picture for Monday. If the rally in the two Indices is to continue, we should see breadth and especially volume begin to increase. If not, this rally is suspect. Watch the important support and resistance areas outlined in the Briefing.
The Indices continued their rally after the Fed announcement last Wednesday. However, as you will see in the Briefing, the internals weakened dramatically yesterday and continued to be weak in today’s trading. Additionally, the Russell has diverged and is trading lower. The SPY and QQQ are both at critical resistance levels, if the downtrend is to be sustained. While the trend is up for now, use caution because it is a very weak trend internally.
I just returned from being out of town and am unable to do a video Briefing. However, I will review price development and price structure completely tomorrow.
Some of my clients joke at what they call the “Joe Indicator”. That indicator tells them when I go out of town, there is typically a large move in the Stock Indices. That certainly happened last week and through today.
Important upside resistance in the SPY is 438 – 440. In the QQQ it is 373 and in the IWM it is 177.50. Use caution tomorrow on long positions. There is a large divergence between price from Friday and today with the internals. Breadth was negative in all of the Indices. The Russell failed to make a new high over Friday. 52 week highs minus 52 week lows was negative. Internally, there was a lot of damage between Friday and today.
More to come tomorrow………….
The Stock Indices tested important support levels on Friday. Today, they bounced on low volume and worked off some of an oversold condition. There is a FED announcement on Wednesday that has the potential to change the perception of value. Therefore use caution in carrying positions into that announcement. Based on the analysis of internals, today’s rally seems to be countertrend in nature.
The Stock Indices today paused for most of the day in a downward slope, testing important support. Some of the oversold condition was alleviated. However, it is possible for the pause to continue on Monday. Breaking the support levels discussed in the Briefing could cause an acceleration to the downside. It appears the bearish price pattern I have been discussing is in the process of developing, but support must be broken impulsively and not retested.
The Stock Indices are showing no impulsiveness in either direction. While they are holding at important support levels, they have been unable to break through as a result of the lack of impulsiveness. That can change very quickly. However, if they cannot break through soon, then the rotational pattern may be the higher probability. The bearish price pattern is still in effect for now.
Today’s move lower was certainly supported by the market internals. It is important to remember that markets run and pause in all degrees of time. While there is a possibility of a continuation of selling tomorrow, keep in mind the Market is extremely oversold. If fear hits the Market, being oversold will not matter. On the other hand, I have to be aware of the current oversold condition and the possibility of some type of pause to work off that oversold condition.