“When the market speaks… it PAYS to listen!”

– Title of July 2003 TASC Article on Market Internals

MTA Educational Web Series on:

Market InternalsPresented by: Mike Hurley, CMT

Presented by: Mike Hurley, CMT - mike@mikehurley.com - 775-750-8921 22

Introduction

Background

Overview / Basic Usage

Related / Advanced Indicators

Actual Market Examples

Wrap-up/Ref’s

33

Background

Trading markets since 1984

Analyst/Strategist since 1993– E*OFFERING, SoundView, others

Mutual Fund PM since 2007– Launched FGLSX Sep’07 & ILSCX Mar’09

Actively using technical tools for 25-yrs; particularly fond of ‘Market Internals’

Presented by: Mike Hurley, CMT - mike@mikehurley.com - 775-750-8921

44

Overview

What are Market Internals?– Breadth: Advances, Declines & Unchanged– Leadership: New highs & New lows– Volume: Particularly Up & Down Volume– Quoted on daily & weekly basis – know the difference!

Why do we care?– ‘Pulse & blood pressure of the market’– Better way to define ‘The Market’– Excellent tools for identifying turning points

Presented by: Mike Hurley, CMT - mike@mikehurley.com - 775-750-8921

55

The Basics Traditional Signals

– Raw data – if at all– A-D Line used to confirm trends– Breadth can LAG! – NASDAQ has downward bias– Can also use ratios (10-1 Volume)

– Leadership often the clearest picture

Personal Use– Use leadership extensively

(raw/net)

– Watch for divergences in direction of trend (i.e. up volume in up trend)

– Stick to the ‘Big Picture’ (systems = sand)

66

Breadth Studies Momentum of A-D

Line– Developed by Gerald Appel– 21-day good OB/OS indicator – Always mind the trend!– Connie Brown trick (range

shift)

McClellan Indicators– Oscillator: 19-39 of A-D– Summation: Cumulative total

‘90% Days’– Lowry’s: U/D Volume and A/D– ID panic selling & buying

High Low Logic– Dev. by Norman Fosbeck– Lesser of NH or NL / Total

Issues – >2½% is bad (i.e. split tape)

Hindenburg Indicator– High Low Logic (>2¼%)– McClellan is negative– Above 50-day

%New Highs– Dev. by Gerald Appel:

NH/(NH+NL)– SMA/EMA – smoothes raw data

77

Leadership

88

1987 The Top

– Very weak rally– Leadership diverged at Aug

high– Few Hindenburg's– Broke support – on Wed!

The Bottom– Breadth oversold; 1,200 New

Lows– Powerful divergence formed – Bouncing & testing is common – Rebuilding takes time!

99

1990 Garden Variety Bear

Market– A-D Line peaked Aug ‘89 – No power in breadth or leadership– Few Hindenburg’s

Typical Bottom has 4 Steps– Psychological extreme– Recognizable chart

pattern/divergences– Substantial rally off the lows– Successful test – ‘Dip but not a trip’

Charts lead the news!Presented by: Mike Hurley, CMT - mike@mikehurley.com - 775-750-8921

1010

1998 Topping Process

A. Healthy rallyB. Normal consolidationC. SUSPECT rally

Bottoming ProcessD. New low in New LowsE. 40-1 SignalsF. 90% Down Days (Vol)G. 90% Up Days (Vol)H. Bullish Divergence!

Process vs. Event!

1111

2000 NASDAQ 3000

– Healthy breakout (A)– Despite Y2K fears

NASDAQ 4000– Double Top?– Internals OK (B)

NASDAQ 5000– 1st push OK – 2nd push – major

divergence!– 4,500 was confirmation (D)

Presented by: Mike Hurley, CMT - mike@mikehurley.com - 775-750-8921

1212

2002-03 Bottoming

ProcessA. Extreme low – wash-

outB. Successful test of lowsC. Less down volumeD. Fewer New LowsE. Up volume shows

buyingF. Up volume weak at

highsG. Support breaks – to

800H. Light selling

(divergence in down vol. & new lows)

I. Healthy breakout!

Process vs. Event!

1313

2008-09 2008 Top

– Leadership diverged– XLF diverged– XLY/XLP Declining– Potential H&S?

2009 Bottom– Leadership diverged– Steep Yield Curve– XLY/XLP Advancing

‘Rational analysis’

Presented by: Mike Hurley, CMT - mike@mikehurley.com - 775-750-8921

1414

Limitations NYSE data has

oddities– Roughly 50% of issues are

‘non-operating companies’ (ADRs, Bond Funds, etc.)

– Subject to influence of yields– NASDAQ much more ‘pure’– Occurs during deflation (see

Gibson’s Paradox – David Penn; also John Murphy)

1999-2003A. 1998 Market BottomB. Stocks rally, bonds declineC. Stocks decline, bonds rallyD. Stocks & bonds in sync

1515

Wrap-up/Ref’s Summary

– Market Internals can be a very valuable tool– Signals uncommon; particularly powerful when

combined– Goal: Provide introduction and to inspire further

study

Ref’s (small sample)– Gerald Appel –Technical Analysis – Robert Colby – Encyclopedia of Technical Market Indicators– Alexander Elder – Trading for a Living– John Murphy – Intermarket Technical Analysis – Mike Hurley –Technical Analysis of Stocks & Commodities (Jul‘03)– David Penn –Technical Analysis of Stocks & Commodities (Mar‘02)

Questions/Comments are Welcome!Presented by: Mike Hurley, CMT - mike@mikehurley.com - 775-750-8921