Tuesday, June 14, 2016

Making Invisible Visible: Market Internals Reveal Continuing Bearishness

From the desk of Sagar Nandi and Superior Profit:

Superior Profit Investors are alert to what is happening in the Market Internals to take advantage of opportunities in the outside: in terms of Stock investing.

Exactly one month ago, I had shared the Market Internals of USA Market that was Bearish in connotation. You may study that article here. In that study we had used Traffic Light to color the Candles. You may study more about Traffic Light and other Superior Profit indicators etc. in our Education Center Books.

Today, on 13th June' 16- prior to Market Open, I looked at Market Internal again. And the Bearishness continues. Here is today's NASDAQ and NYSE Market Internals study: today I used Flow color to paint the Candles. You may learn about Flow indicator also from our Education Center Books.
Note that this study is using Weekly interval. Which is what Superior Profit Investors use for Broad Market Internals. On shorter time frame, such study may provide no clear information of use.

If we look back four bars ago (which is four weeks ago - about the time the last Internal study was presented in an eariler Blog), we see that both NYSE (right side chart) and NASDAQ (left side chart) actually recovered from that level. To novice eyes looking only at overall market (say, looking at SPY and QQQ ETFs) market may seem to be strengthening. Not to our Superior Profit Investors who are aware of Market Internals.

Let us study this Internals chart  in some detail - following the pointed areas in the chart.

(1) NYSE Index went to the previous top and hit the Memory Resistance and came down with a Bearish shape Candle (with long Upper Tail). The top of the Tail pierced the Memory line - probably stopping out many Shorts. And pulling in new Longs who look for Breakout trades (in Superior Profit Way, we are not gaga about Breakout trades if you follow us regularly ...). Only to frustrate the Longs with the Bearish Candle at end of the week.

(2) NASDAQ Index was weaker in price chart than NYSE. It could not even reach the Resistance Memory Line. And closed the week with a Bearish shape Candle (solid body Candle).

(3) NYSE made more 52 Week Highs relative to the last peak. Which is Bullish. And this again probably mislead many investors. Fooling them into thinking that market is going to rally. The 52 Week Highs were probably in strong stocks that were making new Highs were big players were selling other stocks. A well known ploy of big players to mislead small investors. Why we think that Market was not actually strong? We see that from subsequent Internals study.

(4) NASDAQ was not making a new peak of 52 Week Highs. Here it was sideways. Again showing a weak NASDAQ relative to NYSE.

(5) In terms of Stocks Advancing vs. Stocks Declining, NYSE was clearly Bearish. Declining stocks made Deeper Troughs than Advancing Stocks could make Higher Peaks.

(6) NASDAQ Advance Decline showed the same picture as NYSE. Decliners outpaced Advancing stocks.

(7) NYSE Up vs Down Volume pained same Bearish story as NYSE Advancing Declining study. Bears were stronger - making Deeper Troughs.

(8) NASDAQ Up Down Volume shared same characteristics as NYSE Up Down Volume. Indicating Bearishness.
 
The above point by point analysis - which takes only few minutes for a Superior Profit Trader, reveals the broader picture.

Between the four studies each of NYSE and NASDAQ that we perused: Indices Price Move, 52 Week High Low, Advancing Declining Issues and Up Down Volume, only 52 High Low of NYSE is of Bullish implication. All the other 7 studies are Bearish. Giving rise to the overall Bearish conclusion on Broad Markets.

How to use this information? It could be used in many ways by Superior Profit Investors:

A) One could look to tighten Stop on existing Long positions - specially those instruments that move in tandem with Broad Market. Or may exit those positions and book profit. At least partial profit may be booked ... to protect profit. One of our Superior Profit Traders had booked quick profit in a recent Mylan trade shared in Traders Community - not holding on to the trade for longer.

B) One could look for Short Opportunities. Using CUE Sonar (Explorer in Metastock) and CUE Charts to look for Trend Reversal / Top Catching investments ... you may look at recent analysis of Facebook in our Traders Community for one such potential trade idea.

C) One could look for instruments that were not correlated with Market. Which might have been languishing while Broad Market was rallying for last year and more ... And look for Long opportunity in those. You may look at recent analysis of Natural Gas to see how such an investment could be identified.

Other possibilities exist. Using Stocks or Options or Futures etc. as per the liking of a particular investor.

And Superior Profit Investors make profitable decisions using such analysis every time. Confidently.

Sagar.
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