8:22 AM CT - I've added the top, Market Delta chart to show how we are building volume (and thus accepting value) below the day's VWAP. When we build volume in a relatively narrow area (1103/4 in ES futures), we want to look for moves away from that area as a kind of breakout move. The volume and participation associated with such moves will help determine whether we sustain a rejection of the price level or will fall back to that consensus area. Note that the current volume bulge is occurring at the lower area of a multi-day range: a break below that level would also be a candidate break of that wider range. Conversely, rejection of the bulge area to the upside would target the opposite end of the range.
We can see that CBOE equity put/call ratios have been running about average in the wake of the recent market rise. While we're well off the bearish sentiment levels seen at the recent lows, we're also not near bullish levels that have been associated with recent market tops.
My proprietary index of short-term market momentum has also moved smartly higher in recent days. It tends to top out ahead of price, particularly during market upturns, suggesting that we could see further upside to the rally.
My Demand/Supply Index, which is a measure of the number of stocks closing above and below the volatility envelopes surrounding their moving averages, is showing low levels of both Demand and Supply--a characteristic of range markets. That places us in watch mode for a breakout move today.
I'll be updating this post later this morning and tracking the market via Twitter (follow tweets here).
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