Stock Market Internals and Auction Market / Market Profile Perspective of US Stock Indices July 2, 2012

Breadth (NYSE advancing issues minus NYSE declining issues) closed at + 1219 for the day, down from the strong + 2332 registered on Friday. The 3, 5 and 10 day moving averages of NYSE advancing issues are in upper extremes suggesting that they are making momentum peaks that may not be exceeded for weeks, or longer. This does not imply the stock indices will not go higher immediately from here! As an example, In February of this year both the 3-day and 10-day MAs of NYSE advancing issues were in a similar position as now. The indices continued to rally into the end of March and the S&P cash rallied an additional 6% before any significant selling occurred. By the time there was a top of significance there were pronounced divergences between the higher highs of the indices and lower highs in our breadth work. Note that “divergences” began almost immediately at the momentum peak on February 3, highlighting the need for a signal from the market that not only is it trading higher on less momentum, which it can do for a long time, but that it also is about to reverse. An initial and objective signal will be when the indices begin trading through and below recent minor HVNs (High Volume Nodes) as illustrated in the second chart below.