Back on August 27th, I wrote a blog post about how the market internals that I track (i.e., the McClellan Summation Index), was pointing to a near-term beginning of a bounce in the overall market (click here for that blog post). While I thought we were about to bounce in the market, I also thought that the bounce was going to find resistance at some point after a handful of days.
Here is the main chart from that blog post …
McClellan Summation Index – Daily Chart (August 27th)
The bounce has lasted a bit longer than I originally thought, and there is no clear sign of a finish to this bounce yet. Could we find buyers of the overall market taking a pause once we complete this week’s end to the monthly OpEx? That wouldn’t be the first time a monthly OpEx happened right at an important market pivot high. We will have to wait and see about all of that, but in the meantime, there are several good looking stocks trading in the market right now.
Here are the updated snapshots of the market internals …
McClellan Summation Index – Daily Chart
There is no slow down yet in the market internals, so traders should not be expecting the market to roll over anytime soon. Are we going to KISS the underside to the broadening price pattern that I have been following for awhile? Maybe … If the market is indeed going to slow down, then we should be able to see signs of that slowdown happening first on the smaller time frames.
McClellan Summation Index – 195 Minute Chart
You can see that the rate of change of the 20EMA indicator (bottom panel) has just started to “possibly” roll lower … that is a bit of a stretch, but it is something that I think is worth watching as we head into monthly OpEx. I circled in red and labeled 1,2,3 the last time the internals turned lower … note how the rate of change of the 20EMA was the first indicator to show a weakening (circle #1)? Shortly after, the relative strength vs the SPY indicator (middle panel circle #2) showed weakness, and then finally the Summation Index broke the daily ATR support level (price panel circle #3).
I tried to show where those points in time lined up with the daily SPY chart … you can see that the market did indeed grind higher as we went from the first signs of weakening to the final point where the ATR was broken, and the SPY actually put in a short-term pivot high.
Bottom Line – The market is pushing higher, but we are seeing the first signs of the internals starting to slow down. No need to get overly cautious, but tighten up stops and just stick to trading bullish stocks that are acting strongly.
Cheers … Leaf_West