Market Internals 2013-09-22

By Lawrence

Monthly update on market internals.

The current snapshot of S&P 500 3-Day Advance Issues, Tick16 Short Term + Long Term as of 2013 September 22 close.

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Reading

1. Long Term Tick16 (yellow line) tagging neutral zone from below

2. Short Term Tick16 (red line) back up at overbought zone forming two divergence tops against S&P new high. One spans 10 days and the other spans 3 days.

3. 3-Day Advance issues (green line) dropped down to neutral zone after divergence top against S&P new high

Inference

a. #1 is neutral

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

c. #3 a short term top will be in place if 3-Day Advance can go negative. A bounce off neutral zone can be a very powerful buy signal so there will be a big fight to control the outcome

Review

Inference from last update worked out well:

– S&P formed short term bottom right at the beginning of the following week

– rally from the short term bottom did not make it to 50% as it dropped lower first

The long term outlook mentioned that where S&P will be heading depends on the 3-Day Advance formation. By end of August / early September we’ve got the divergence bottom in place resulting in one strong rally.

Long Term Outlook

The other long term breadth data I have also points to major divergence against this S&P new high. Historically there are 2 ways to resolve such divergence. First is a quick deep sell off of 10% or more. Second is a 5% sideway move with extreme volatility.

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Comments
  • Lawrence Chan September 23, 2013 at 7:52 pm

    Confirmed break by 3-day advance issues.

    More downside likely.

    • Minty415 September 23, 2013 at 8:22 pm

      Saw that. Since it is back to “oversold” area now, how do we distinguish if it will use that excuse to bounce vs. further momentum down? I see that short-term tick is still overbought so that is bearish.

      • Lawrence Chan September 23, 2013 at 9:35 pm

        When I get to that in the Market Breadth Primer it will become clear.

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