Market Internals is the heart beat of the Market. Internals can be effectively used for determining the directional bias.
If there is convergence between spreads and TICKS and index during a high or low, it shows strength and support for the move and most probably market will continue pushing in that direction. Conversely, if there is divergence in internals and indexes, expect market to reverse course.
Consider the following example. On June 4th 2013, market made a high in the morning and eventually got sold off.
At point 1, ES made a higher high, TICKS extended the range BUT spreads made a lower high. Spreads were not able to extend the range. Besides this, Spreads opened below ZERO, moved higher and during the pullback failed to hold the ZERO line.
Eventually, market got sold off and extended the range to the down side at point 2. Both TICKS and Spreads extended the range to -ve side at point 2. This shows strong support for the move and a strong indication towards the upcoming market direction.
The pullback from point 2 to point 3 lacked strength and market eventually sold off. Also note that between point 2 and point 3, TICKS hit -800 2 more times, indicating strong selling, another indicator for a probable downside bias.
ES made a high at point 1 with no support from spreads. The low at point 2 had a convergence of TICKS and Spreads, indicating a probable downside bias.
TICKS with point 1, 2 and 3. Between point 2 and 3, TICKS hit -800 2 times, indicating strong selling.
Spreads made a lower high at point 1. At point 2 spreads extended the range to -ve indicating support for selling.