June S&P 500 Index Breadth Divergences and Reversals (SPY, DIA, INDEXSP:.INX)

Corey Rosenbloom: Monitoring Market Internals – particularly Breadth – tends to be very helpful for short-term traders to asses market strength or weakness, particularly during a mature rally or decline.

Let’s take a look at the current state of Market Internals and how they have been effective for trading intraday trend reversals and breakthroughs.

The simple price chart above compares the S&P 500 Index with two key Market Internals:

NYSE Breadth:  The number of Advancing Issues minus Declining Issues

NYSE VOLD:  Volume Difference, which measures Volume Difference of Advancing Issues minus Declining Issues

As the broader Momentum Principle states, we are assessing two things when assessing Internals:

Confirmation – New Price Highs and New Breadth Highs – tends to lead to future continuation of the trend in motion.

Non-Confirmation – New Price Highs and Lower Visual Breadth Highs – tends to lead to a future reversal of the trend.

The same logic is true for a downtrend in motion.

For reference, one could also substitute Volume or a Momentum Indicator in addition to the Breadth/Internals chart above.

What’s the lesson?

As price pushed to the 1,270 level (which was a Higher Timeframe key support region), both Breadth and VOLD registered visual higher lows when compared to the readings on June 1st.

This was a Market Internal divergence that suggested potential reversal – or at a minimum, that the selling phase was in the late stage.

Mid-day, price broke a falling trendline and indeed completed an intraday trend reversal.

June 5th and 6th showed clear strength in internals as price developed a new uptrend with bullish price action, particularly that of June 6th.

However, June 6th – with price closing at the 1,310 level – registered the highest level of Breadth and VOLD.

Remember, strength in internals – when confirmed with price – tends to lead to a continuation of the price trend in motion.

The future sessions did result in higher prices, with spike  intraday highs coming off the day’s open.

Monday June 11th revealed a surge and strong gap higher above 1,330… yet a quick glance at Breadth and VOLD showed a non-confirmation or visual divergence.

The lengthy intraday trend and prior declines (weakness) in Market Internals were warning or caution signals of potential price weakness.

Monday’s session developed a sharp sell-off from the open, falling from a new (recent) price high all the way back to the price low – and potential support level – into the 1,310 region.

So far, June has been a good lesson in applying Market Internals to short-term (intraday) price charts for additional information “behind the scenes.”

Continue monitoring Internal strength or weakness with short-term trends and price movements.

Related: S&P 500 Index (INDEXSP:.INX), SPDR S&P 500 ETF (NYSEARCA:SPY), SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA).

Written By Corey Rosenbloom, CMT From Afraid To Trade

My name is Corey Rosenbloom, CMT (Chartered Market Technician)  trader, educator, analyst, and I am excited to share with you my  experiences studying and trading the markets and to hear from you  regarding your experiences, challenges, and frustrations, and successes.  My goal is to create a community dedicated to reaching out to those who  have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share strategies and learn how to overcome crippling fears that keep  us from achieving our highest potential.

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