While price screams “higher, higher!” Market Internals yell “Caution! Look out below!”
Let’s see who’s winning the battle of Price vs. Internals as the S&P 500 crept to a recent all-time high.
I highlighted three events where Market Internals aligned with – or confirmed – the upward price action.
When Market Internals make new highs along with price, it suggests ongoing strength and that the trend will likely continue higher (thus look to buy retracements or breakouts as price trades higher to continue the trend).
However, divergences – or lower highs in Internals while price is making a higher high – are caution signs that suggest ceasing buying pullbacks and shifting to a more defensive posture ahead of a retracement (or short-term reversal).
That’s what is happening now as price pushed to a new all-time high yesterday on weaker internals (particularly Breadth and TICK highs).
Today’s session – at least so far – is a retracement lower as expected.
Here’s a zoomed-in perspective of the 15-min intraday chart:
We see the same picture only slightly clearer with respect to the divergences with price and internals.
Again, be cautious and continue to monitor internals with price action.
For more daily updates from Corey, visit his blog at Afraid to Trade.com.