After Tuesday’s sharp sell-off took price to the rising 20 day EMA, the morning session on May 5th greeted traders with a swift breakdown of the 1,170 level… but it did so on slightly stronger relative market internals.
Let’s see an updated chart and what levels to watch for reference for today’s trading session.
We did have a 10 point morning sell-off, but at the lowest point (1,158), ALL three key market internal indicators were above where they registered on yesterday’s low of 1,169 just before the close.
That marks a positive divergence in the three key market internals – Breadth, TICK, and Volume Difference – which should give intraday short-sellers a bit of pause while the dust settles.
Positive divergences do NOT mean that price is required to reverse, but sends a caution signal to monitor price closely and not let your bearishness get the best of you. Keep watching new developments through the day closely.
It would be a very bullish turn of events, triggering a potential reversal of short-term down trend, if buyers can push prices back above the 1,170 level, or to be safe, above the resistance level from yesterday’s close at 1,175. That would likely trigger a ’short-covering’ rally higher.
However, 1,170 is the key price level to watch, as it still remains the 50-day EMA and is a ’round number’ level.
Watch to see if sellers step up here and trigger a ‘bear flag’ sell signal, which would be triggered if we break back under 1,165. Remember that 1,150 is the key level to watch as a major reference point, and would be the logical target if we break back under 1,160.
Keep a close watch on market internals and price as it interacts with these reference levels – 1,170 as a line, 1,175 as a bullish breakout level and 1,165 as a bearish line and 1,160 as a bearish breakout level.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade
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