Market Internals 2013-05-19

My monthly update on market internals.

The current snapshot of S&P 500 3-Day Advance Issues, Tick16 Short Term + Long Term as of 2013 May 17 close.

Reading

1. Long Term Tick16 (yellow line) moving back up to right below neutral zone.

2. Short Term Tick16 (red line) moving back up to neutral zone.

3. 3-Day Advance Issues (green line) bounced off zero line once and divergence from new high prints in S&P

Inference

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

b. #2 points to breakout mode where next move can be very explosive in either direction

c. #3 Very strong bearish divergence points to a quick selloff or consolidation in the making

Last update predicted a potential short term bottom in the making and that was one powerful rally from that bottom.

Current rally has very strong signature of blow-off top thus it is important not to chase this rally.

This pattern, however, has happened once before back in July-Aug 2012. The 3-Day Advance Issues will correct itself as that is the nature of the statistics. If by the time it has moved back down to below neutral zone while S&P going sideway or pullback just a little only as in late Aug to early Sep 2012 , we will get a powerful short squeeze as a consequence.

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