Market Internals 2013-07-21

Monthly update on market internals.

The current snapshot of S&P 500 3-Day Advance Issues, Tick16 Short Term + Long Term as of 2013 July 19 close.

Reading

1. Long Term Tick16 (yellow line) well below neutral zone going sideway

2. Short Term Tick16 (red line) drifting in overbought area

3. 3-Day Advance issues (green line) bounced off neutral zone with S&P just made a new high

Inference

a. #1 is bearish pointing to a major top in the making

b. #2 points to a short term top in the making

c. #3 divergence top setup for short term top in the making

Last update I was looking for a flush low to create a powerful squeeze and I got that right on.

A powerful rally like the one we are having does not stop easily until something break the rhythm. Thus a series of pullbacks will have to be in place to create the long term top, if such a top is going to be formed at all.

The weakest scenario is that S&P can start its pullback now and limiting its Long Term Tick16 from recovering to neutral zone. Timing for an immediate pullback is within next few days.

The strongest scenario is that S&P although weaken its Long Term Tick16 keeps recovering to neutral zone. That will produce a decision point where S&P can gun for long term upside breakout or a total collapse. The outcome of this scenario will depends on the aggregated bets made on the market by the time it reaches the critical moment. Timing for this complex top formation will take 2 to 3 weeks.

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