Here’s the intraday chart structure:

What we’re seeing is the S&P 500 Index on the 5-min frame with two Market Internals that show Breadth:

• $ADD:  NYSE Breadth (Advancing Issues minus Declining Issues)
• $VOLD:  Volume Difference of Advancing Issues and Declining Issues

Before we discuss the current structure, let’s review the most recent negative divergence that developed on May 10th into the 1,365 resistance area.

Breadth and VOLD peaked with price on May 10th, yet price pushed the next session back to 1,365 but this time we saw a visual decline – negative divergence – in both Breadth and VOLD.

This mid-morning situation (divergence) was the intraday peak ahead of the current decline to the 1,330 level.

Similarly, Breadth and VOLD pushed to new lows on May 14th (Monday) with price near the 1,340 index level.

Yesterday (May 15th) resulted in a price push UNDER the support level… but both Breadth and VOLD failed to register new internal lows, locking in a Positive Divergence.

Now, Wednesday’s session opens with a bullish gap and initial upward impulse which has resulted in a push-up in Breadth as well.

In sum, Breadth and VOLD – Market Internals – suggests at least initial price strength/bullishness as a result of their positive divergences.

We’ll look to price today and tomorrow for confirmation/follow-through with this potential bullish signal with respect to the key 1,340 index level.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Let’s take a quick look at the Index and plan for potential action at this visual chart level.

First, let’s see the Confluence Support Line that develops from the Weekly Chart:

Again, a quick glance shows the 4,800 Index level as the visual focal point for potential confluence support on the chart.

This builds from the flat 200 day Simple Moving Average currently resting at 4,819 and the 38.2% “Bull Market” Fibonacci Retracement at 4,873.

It’s worth noting that Confluence Support Levels are not mystical levels were price is required to reverse; instead, they are levels that often drive additional interest and trading activity that could shift the supply/demand balance.

In other words, buyers have a low-risk, high-reward potential opportunity that could spark a bounce here potentially to target at least 5,250.

However, if collective selling activity is stronger that collective buying activity at this key level, then it would open the index to target lower support levels such as 4,500.

In this way, we follow price as it trades relative to key inflection areas – the index has the potential for bullish movement above 4,800 or else bearish continuation under 4,800 to respective targets.

Let’s see a closer picture on the Daily Chart:

The Daily Chart again highlights the 4,800 region – not the exact number – as a key inflection or turning point for price.

The Index reversed initially higher off 4,750 then traded minimally under 4,700 with positive momentum divergences ahead of a power-rally/bounce in early 2012.

Consider the 4,800 region to be a very important reference level as price (buyers and sellers) again interact at this key level.

Short-sellers may decide to take profits (exit positions) near this level while buyers may decide to put on new swing-trading positions.

The interaction here – and whether sellers can collectively break this support level – will be key in playing the next few weeks in the market.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

It’s time to go ahead and make plans to attend the Traders Expo in Dallas, Texas June 6-8 if you will be able to attend.

If you’ve attended a prior Traders Expo, you know how fun and beneficial they are for you as a developing trader.

Not only do you get the opportunity to learn from dozens of leading traders presenting educational sessions on current market conditions and strategies, you also have plenty of time to network and meet fellow traders with whom you can keep in touch and learn from each other.

As a new or developing trader – particularly if you trade alone at home – it can be very encouraging to meet others who are sharing similar experiences – good and bad – as you are.

The Expo is a stellar venue for building camaraderie with others and keeping in touch with what’s new in the trading industry.

You also can demo the latest in trader software and technology at the large Exhibit Hall between educational sessions.

Speaking of educational sessions, there are always so many sessions from which to choose depending on what type of trader you are (day, swing, position), market you trade (commodities, FOREX, stocks, ETFs, futures), along with your experience level (new, intermediate, and advanced).

I’ll be presenting two sessions at the Expo on June 7th – mainly designed for intraday traders:

Intraday Trading Tricks with the TICK:  Kick-offs and Divergence Signals

How to Identify and Trade Range Days

Visit the homepage of the Dallas Traders Expo to see a full listing of speakers and sessions you’ll be able to attend.

Other educational speakers include Brian Shannon, Larry Williams, John Carter, Kathy Lien, Anne-Marie Baiynd, Chris Terry, Scott Andrews, Harry Boxer, and Robert Miner – just to name a few!

And if you’re unable to attend the Expo, you’ll be able to view live webcasts of some educational presentations as they take place during the Expo (check for details as it gets closer to the Expo).

I sincerely hope you can join us all in Dallas!

Corey

The recent sharp sell-off confirmed the earlier signals and added to the broader Distribution Picture.

Let’s take a look at the current “Volume Only” color-coded SPY and DIA (S&P 500 and Dow Jones ETF) charts:

Dow Jones ETF:  DIA

Start with the April 11th original “April Distribution Volume Trends” for background information and to see what the Distribution Volume picture was in early April.

To recap, according to classical Technical Analysis, volume should confirm price (part of Dow Theory).

What this means is that if Volume and Price move in the SAME direction, expect the price movement to continue.

Instead, if Volume and Price move in opposite directions, expect a future reversal.

Beyond this, we can compare how volume performs on upswings (rallies) or down-swings (declines) in price to get a sense of the bigger picture of money flow.

This can help us see if money is aggressively flowing IN to a rising market (which is bullish) or flowing out of a falling market (which is bearish).

Now, back to the current picture.

I color-coded the recent intraday swings as either “rallies” or “declines” accordingly so that we could clearly see the trend or progression of volume – rising or falling.

It should be clear that during green rallies, volume has been declining or falling (again as price is rising) and that during sell-offs or declines, volume has been progressively rising.

This points to a broader pattern of Distribution – less enthusiasm/activity during rallies and more activity/transactions during declines.

Put in the larger context of an over-extended rally and the seasonal “Sell in May and Go Away” sentiment, this at least paints a picture of caution for the equity markets.

We’ll always let price be the main guiding factor, but for the moment, volume trends/signals paint a cautious to outright bearish picture that we need to monitor closely in the weeks ahead.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Let’s take a look at what happened, what levels are important here, and what current structure reveals.

First, the intraday 30-min “Structure” Chart of Gold:

When we’re assessing “Market Structure” or “Swing Structure,” we simply note the progression of price highs and lows to create a reference.

Take a moment to review a recent “Multi-Timeframe Structure” lesson using Silver to highlight the concept.

We use structure to determine uptrends, downtrends, or – in the case of gold’s intraday chart – sideways trends.

On the chart above, we can see gold “building” a sideways structure (trend) with clear converging ‘Symmetrical Triangle” trendlines.

The immediate levels going into today’s session were $1,630 for lower support and $1,660 for upper resistance.

Pre-market, Gold broke the ’structure’ and an intraday trend day or sharp sell-off resulted from the initial movement out of the Triangle structure.

With the intraday triangle image in mind, let’s pull-up the perspective to the Daily Chart:

As I’ve been highlighting to Weekly Inter-market Members lately, Gold has been bouncing off the short-term $1,620/$1,630 level and failing (giving short-term retracement entries) into the overhead 50 day EMA.

Today’s session broke this pattern that developed in March and now the market faces a critical “Make or Break” support test at the $1,600 round-number easy reference line.

While $1,600 is easy to remember, it’s also an important polarity level, serving as support multiple times as seen with the horizontal yellow highlight above.

Buyers continued to step-in to support (purchase) gold at the $1,600 level with the exception of a two-swing breakdown in December 2011.

Keeping it very simple, $1,600 is thus the key “Bull/Bear” reference level – gold has a bullish bias while price is above $1,600 or else a bearish bias while under it.

A continued sell-off here suggests $1,550 or even $1,525 would be the next support level (or target price if you are short-selling under $1,600).

Gold’s Momentum/Volatility Cycles

I also wanted to highlight the persistent “Momentum Compression” (almost like a triangle pattern) in the 3/10 Momentum Oscillator.

Periods of price expansion or ‘big impulse/trending’ moves tend to emerge from low-volatility or compressed periods in price.

Stated differently, price in general tends to alternate (rotate) between sustained periods of high then low (then high) volatility.

We would call the July to October 2011 period as “high volatility” which gave-way to the recent multi-month compression or reduction in volatility.

One would suspect a future higher volatility period would result, particularly if we see a breakthrough trigger under $1,600 (for the bearish side) or alternately above $1,700 (to the bullish side).

Nevertheless, while $1,600 may seem too simple to be a key level to watch, it is the important reference level for the immediate future.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Let’s take a look at the current scan results and the opportunities these stocks may present.

First, here are the most ‘bullishly over-extended’ stocks in the S&P 500:

This scan returns the percentage distance above or below the 200 day Simple Moving Average as a quick measure of trend strength or price over-extension.

When you’re looking at these stocks, eliminate those which have a sudden or large recent gap which will skew the percentage, especially in low-priced stocks.

What you want to identify is a salient, persistent trend on the Daily Chart and from there, you have two specific trading strategies:

“Fade” Traders can look to play SHORT for a quick ’scalp’ trade from an overextended new high to target a quick move back towards the 20 day moving average or else some sort of lower support trendline.

“Pro-Trend Retracement” Traders instead will identify the strong trend in motion and then look to buy (put on swing positions) as price returns to these rising trendlines or moving averages for a low-risk, pro-trend retracement trade.

Let’s see how these have worked recently in our top-extended stock PulteGroup (PHM):

The red arrows indicate counter-trend “Fade” trades (those that seek to enter into the upper Bollinger on an extended price swing and target rising moving averages or trendlines as price ‘works off’ the over-extension).

The green arrows indicate typical pro-trend “Retracement” trades which seek to enter on the pullback to trendlines or moving averages, or else on the break above a falling ‘bull flag’ trendline (for a less-aggressive entry).

Watch to make sure you see steadily rising volume on each up-swing to have greater confidence in a successful retracement outcome (targeting at least the prior swing high or into the upper Bollinger Band).

Not all retracements work perfectly – the April move under $8.50 in PHM is an example of a retracement that went deeper than expected yet the trend still continued higher which brings us to our current ‘overextended’ rally (a chance for short-sellers to play against the recent swing).

Other stocks in the Top 5 SP500 list include Lennar Homes (LEN), Regions Financial (RF – a low-priced stock), Gap Inc (GAP – a popular retail/clothing store), and Masco Corp (MAS).

It’s generally a good sign for the economy that the top extended stocks are two home-builders, a financial company (albeit a small one), and a retail company.

The logic is just the opposite for the Top-5 Under-extended stocks.

Finally, here are the most ‘bearishly under-extended’ stocks in the S&P 500:

I’ve been doing these scans frequently, and one name seems to keep reaching the top of the list:  First Solar (FSLR).

From the chart, it’s easy to see why:

First Solar (FSLR) is becoming a case-study in pro-trend logic (“The trend is your friend” – “Do not fight a trend”).

Again, Pro-Trend Retracement traders had numerous retracement or ‘bear flag’ style opportunities all the way down.

While the trend has been strongly negative, counter-trend “Fade” traders have also had successful swings or quick scalps in the stock – good for quick-aggressive $5.00 to $10.00 ’scalp swings.’

It’s worth noting that counter-trend scalp strategies should only be deployed by aggressive and preferably very experienced traders – new or developing traders should play the safer pro-trend retracement opportunities which carry lower risk and defined entries and stop-losses.

The remaining stocks in the under-extended list include NetFlix (NFLX which garnered a lot of attention during its decline from its $300 per share peak), Alpha Natural (ANR),  Chesapeake Energy (CHK – which also has appeared in prior under-extended scans), and MetroPCS Communications (PSC).

Remember, this is a quick-scan for potential trading opportunities depending on the style of trader you are and the strategies you use.

Don’t just “scan and trade” – do a bit more homework as always before putting on any trading position though these types of scans can reveal names you might not consider otherwise.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Let’s take a look at the key short-term price levels (and chart structure) to watch for potential opportunities in the weeks ahead.

First, the Daily Chart levels:

Two main levels have developed on the chart, which are emphasized on the intraday chart below:

• The first is the Upper Resistance from the falling 20d EMA at $420.
• The second is t he Lower Support via the rising 50d EMA ($404) and “Round Number” support at $400 which is also the April 2012 swing low.

Luckily, these serve as easy reference levels:  $400 and $420.

Let’s take a moment to discuss a few more factors from the Daily Chart before focusing on these levels.

The most obvious development is the “creeper” power-rally through early 2012 that provided an extra-stable angle of ascent in price – you just don’t see patterns this clean very often.

The rally produced a mini-bull flag  and successful retracement test of the rising 20d EMA in early April.

From there, price pushed one more time to $440 ahead of the sharp retracement/decline that brings us to our current position between these two “Bull/Bear” reference levels.

The potential for a trend reversal exists IF price breaks under the $400 level – that’s something CMG Bulls must watch carefully.

However, the Bears must be on guard for a turn-around rally and breakthrough above the $420 pivot level – a move above $420 suggests a resumption of the uptrend and continuation swing back to $440’s high.

These will be the two objective scenarios that lead us to the game-planning in real-time:

Bullish for Trend Continuity if above $420 or Bearish for Trend Reversal under $400.

The intraday chart clarifies the picture:

The intraday chart with the recent volume and momentum divergences – at the moment – tends to favor the Bears as long as price remains under the $415 pivot (EMA confluence).

The potential for a “short-squeeze” exists between $415 and $420 (the ‘neutral’ zone).

Finally the Bullish Breakout Buy trigger develops above $421 and $422 (to be safe).

If you’re active in trading CMG shares or options, keep these levels in mind in combination with additional signals/trades you are managing.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Let’s take a look at the intraday ’spiky’ movements and then assess the broader Daily Chart levels in the S&P 500, Oil, Gold, and the US Dollar Index.

Here’s the inter-connected intraday picture:

(Click for full-size image)

We’re seeing a quad-chart view of three “Risk-On” markets (S&P 500, Gold, and Crude Oil futures contracts) and one “Risk-off” market (the US Dollar Index) from a 5-min intraday standpoint.

The highlighted region represents the initial announcement (no change in policy) and through Chairman Bernanke’s press conference.

Despite an initial plunge in gold and a morning gap-fill/sell-off in Crude Oil, these markets were bullish in the aftermath of the policy announcement.

Stocks, Oil, and Gold all rallied sharply during the press conference/interview session.

Despite initial volatility and indecision, the US Dollar index fell sharply to close at the 79 index level.

With this perspective in mind, let’s now take a quick peek at each market’s Daily Chart:

A quick glance at the S&P 500 Daily Chart reveals the two key index areas we’re all watching closely:

• 1,400 for a breakout buy signal to the upside (and the ‘open air’ above 1,400 to 1,425’s high)
• 1,360 for a breakdown sell signal to target 1,340 and then perhaps 1,275’s confluence.

In the meantime, price remains ‘trapped’ between the 20 and 50 day EMAs and the broader 1,390 level shy of 1,400.

Gold continues to fight to hold its critical “Make or Break” support:

I posted this weekend about Gold and Silver’s “Make or Break” critical support pattern with positive divergences into $1,620.

So far, Gold has held this level and – even better – formed repeated lower shadow bullish-potential reversal hammer candles off this reference level.

This time, we can clearly see the Daily Divergences into $1,620.

Does this guarantee gold will support and reverse higher from here?  No, but it’s something we’ll be watching as buy triggers could develop quickly.

Otherwise, a breakdown under $1,620 that carries under $1,600’s ’round number’ reference would suggest a continued drop back to $1,550/$1,525.

Finally, Oil still stagnates between its key daily levels:

I’ve been highlighting the critical support shelf near $102.50 and the $100 level which has held so far after February’s spike-rally.

It’s not surprising that we are still watching this level for any sign of breakdown (under $100) which would lead to a potential play for $96 or slightly lower.

Otherwise – like stocks – a breakthrough above the $105 upper resistance level clears oil to enter “Open Air” back to the $108 to $110 area.

These are the quick mid-week updates that build from the running commentary I provide for members of the Weekly Intermarket Report series – feel free to view more information about these detailed reports than I’m able to post in a quick blog update.

It’s easy to get information overload from all the charts that we view which is why I like to pause briefly and reflect on key index areas as short-term or even intermediate term reference levels such as these.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Both markets are showing similar “bullish divergences at support” which gives us a key level to watch for any reversal… or breakdown/failure… in the weeks ahead.

Let’s start with Gold to note the key trigger and target levels along with the divergences:

Our April 13th update on the “Triple Timeframe Key Levels for Gold” pinpointed the current $1,640 level as critical to the market.

Though we saw a sharp bounce from $1,620 to $1,680 after that update, price has returned to challenge the $1,640 level which will be critical going forward.

I’m showing a color-coded “structure” chart to highlight the key declining trendline which currently intersects the 50% downside Fibonacci Retracement at $1,664.

Traders could look to a price breakthrough above this level as a potential bullish trigger for a continuation move expected into $1,700 for a minimum/small upper target.

That’s the bullish suggestion from the repeated ‘bounces’ off support and the persistent positive momentum divergences… but an upside outcome is by no means guaranteed.

Instead, should price break under $1,630 then continue trading to the $1,600 level, look for a round of liquidation and bearish-positioning particularly on a breakdown under the $1,600 ’round number’ confluence level.

While odds tilt towards the bulls above $1,640, each lower price support level that breaks serves to tip the scale more to the bearish side until odds would favor a breakdown under $1,600.

The structural picture is very similar in Silver (support divergences):

Silver experienced a more prominent ’spike’ higher at the end of February that took out the November 2011 price high – unlike gold.

From there, price has retraced in an intraday downtrend fashion all the way back to the $31 level which is just above the 61.8% Fibonacci Retracement and “price polarity” level at $31.60 from prior support and resistance (mini-reversals).

That being said, we’ll be watching silver relative to the horizontal green support bar I drew just under $31.

For reference, silver becomes a potential breakout buy candidate above the falling trendline at the $32.00 per ounce level.

Above $32 suggests a continuation move back to the $33 level and beyond that on a trigger break above $33’s resistance (Fibonacci and Price Polarity).

Feel free to take a look at a recent lesson I wrote about “timeframe trend identification” using Silver as the example market.

For these related markets, keep focused on the defined horizontal support levels along with the falling trendline for potential trading triggers on any breakout.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Let’s take a look at the market action – and chart structure – as the mid-week approaches.

What price levels are most important to suggest trading strategies from here?

Let’s start with the S&P 500:

For reference, in each of the “Big Three” US Indexes, I’ll be focusing on three main levels:

• The Current/Immediate Support
• The Next Immediate Lowest Target
• The Downside Target if these Levels Break

Before we discuss downside levels however, it’s important to note bullish upside targets which triggered today in the Dow Jones and are one day away from a bullish trigger in the NASDAQ and S&P.

For the S&P 500, there was a quick bull trigger above the falling 20d EMA at 1,386.  This also took out the recent minor high as well.

I color-coded all charts to highlight the Bullish, Neutral, and Bearish levels in the event price moves into – or continues traveling through – these levels.

The immediate level to watch on the S&P 500 is the “Round Number” 1,400 resistance, though 1,390 is also a reference point to watch Wednesday.

The market is bullish short-term above 1,390 and triggers a breakout buy above 1,400 which could lead to a retest of 1,420 (2012 high) or even 1,440 (the May 2008 high).

With those upside game-planning levels in mind, let’s turn to the bearish levels to reference IF the market does fall/reverse under 1,400.

The first should be obvious – it’s a polarity level from the confluence of the rising 50d EMA and February high:  1,370.  That’s where today’s rally emerged.

In the event 1,370 fails as a support level, look to the 1,340 zone.

A deeper retracement would trigger IF the index broke under 1,340 which would open the market for downside targets of 1,300 (round number) and then 1,275 (the 200d SMA and prior resistance level).

Though the numbers are different, the structure (and levels) are similar in the Dow Jones:

For quick reference, the Dow Jones triggered a price-resistance and 20d EMA breakout buy signal today and could continue creeping its way back to the 2012 high of 13,211.

Unlike the S&P 500, the Dow Jones crested briefly above its May 2008 high of 13,136.

We give a little bit more flexibility with levels on the Dow Jones – 13,200 is an important easy-to-remember key reference.

13,000 is not only a major ‘psychological round number,’ it’s also a recent price polarity level (meaning this level served as both resistance AND support) and the rising 20d EMA.

What levels become important IF the Dow Jones breaks under 13,000’s support?

There’s a minor – but important – pivot at 12,700 (similar to 1,340 in the S&P) and if that fails to hold, it opens the door for a deeper retracement towards the 12,200 price and 200d SMA confluence (similar to 1,275 in the S&P).

And finally, let’s see the structure and similar levels on the tech-friendly NASDAQ Index:

It’d be nice to call 3,000 the simple reference – and you could – but it may be more precise to label the current NASDAQ pivot level at 2,990 (it’s the 50d EMA along with the prior swing high into 3,000).

The NASDAQ triggers a bullish buy above the falling 20d EMA which currently rests at 3,042 – above this (you could use 3,050 as your easy-reference), we could see 3,134 (2012 high) revisited again.

With those support (2,990/3,000) and upside target (3,130) levels in mind, let’s turn to potential downside support targets on a retracement from here.

The first one would be 2,900 – that’s easy enough – and then on towards the 2,700/2,750 region (price polarity and the 200d SMA).

While traditional odds (at least from the charts) favor a further downside move, we have to be on guard and ready to adapt to any bullish surprise the market continues to throw at us.

Remember – we’re traders (masters of probability), not fortune-tellers!

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!