Market Internals Bode Caution

What are market internals saying about the recent rally?  They strengthened with a positive divergence ahead of this week's rally but now....

Let's take a quick look at S&P 500 Market Internals as they stand now:

First, let's start with the positive divergence signal sent on August 31st from Market Internals.

As I show frequently, positive divergences in market internals often forecast - or at least hint - positive reversals in price that NEED to be confirmed with trendline breakouts for trading signals (taking off short-positions and putting on new longs).

That's exactly what happened as the market fell again to the 1,040 level on the morning of August 31st - all three key market internals were HIGHER as price pushed to the swing low.  That's a bullish hidden caution signal and we got the trigger and follow-through the next day (with the big gap and rally).

Now that we have the rally, market internals are declining.  That's exactly what you would expect and it's a normal progression - it would be almost impossible to sustain the high levels of bullish internals domination seen yesterday.

So, even though price is higher this morning, internals are declining.  That's a non-confirmation, but it's not yet a "rush to the exits and panic" signal.

Look for trendline breaks or other price-based sell signals for confirmation.

Remember, tomorrow's Jobs Report could be a major market-moving event, but as it stands at the moment, internals are declining (or lower than they were yesterday across the board) as price is rising so that's certainly a present caution signal.