Internal momentum indicators measure the components of a stock index, for example advance/decline lines or new highs/lows. Internal momentum indicators give a view of action underneath the surface of price.
The first chart shows the daily Bullish Percent Index for the S&P 500 ($BPSPX) courtesy of StockCharts.com.
The Bullish Percent Index is a breadth indicator based on the number of stocks on Point & Figure buy Signals within an index.
When a stock index is rising, the Bullish Percent Index will usually be at its highest point months before the stock index reaches its ultimate top. Sometimes there could be more than one Bullish Percent bearish divergence before a stock index peaks.
In late December 2023 $BPSPX indicated maximum internal strength for the S&P 500 (SPX). By late March/early April the $BPSPX bearish divergence vs. the SPX higher price indicated the SPX could soon decline. Which it did.
Subsequently the SPX has moved above its highs made in late March/early April and $BPSPX continues to diverge.
The next daily chart shows the Bullish Percent Index for the Nasdaq 100 ($BPNDX).
Short- term $BPNDX is bullish because its is slightly higher than the level reached on 03/25/24. Long – term there’s a very large bearish divergence vs. the maximum bullish strength recorded late December 2023.
The next daily chart courtesy of Barchart.com illustrates the 52 – week highs for the NYSE.
The mid-March surge in new highs made it appear the rally could continue for several weeks. The bearish divergence on 03/28/24 hinted at potential downside action. The subsequent decline in price was later completely retraced. However, as of 05/15/24 new highs have failed to exceed the late March reading.
The next daily chart shows the 52 – week highs for the Nasdaq Composite.
The condition of the Nasdaq Composite is much more bearish than the NYSE.
March recorded a significant bearish divergence with maximum strength made in December 2023. In May there’s a large divergence with the March reading!
With the news media excitedly announcing Dow Jones industrial Average at 40,000, some investors may have lagging portfolios. If so its because only a few stocks are propelling the stock indices higher.
The current condition of the U.S. stock market is like a magnificent looking house with a rotting structure. A collapse could be coming soon.
Four Dimension Trading 