30 Minutes in Trader Hell

Jan 27, 2009: 4:31 PM CST

Pardon the sensational title, but I wanted to take you inside the 30-minute chart on the DIA and the S&P 500, which I will describe as “Trader Hell.”  I’ll also show you the key levels to watch as we near the end of our consolidation and expect a breakout move very soon.

DIA 30-minute chart:

DIA 30 minute chart

I’ve drawn a bit more than I normally do on this chart so let’s take it step-by-step.

First, look at the zone I call “Trader Hell.”  I call it this because of the vicious swings and large-scale gaps which were all contained within an unknown at the time range that halted any price move outside of it.  We as traders tend to like trend moves or at least impulse moves from one zone to another, but tend to perform poorly when price stays locked in a range that only becomes clear in hindsight.

Second, look at the Momentum Oscillator, which is giving us no clues whatsoever.  I take clues in the form of divergences and new momentum highs (or lows) and the oscillator becomes totally useless while price stays locked in a trading range – where we are now.

Next, look at the label “Volume Decline.”  This would look better on a daily chart, but you can see that volume has ‘dried up’ as we’ve enjoyed this recent upswing in price from $79.00 to $82.50 which serves as a non-confirmation of higher prices.  We’d generally want to see expanding volume on a price swing to the upside, though the divergence in price and volume is serving as an early warning.

Finally, look at the extremely tight range we’ve formed this week.  We have a horizontal trendline at $82.50 and then a rising trendline that terminates currently at $81.30, locking price within a $1.00 range between significant support and resistance.

Also, the key moving averages – which lose their significance in a trading range – have turned bullish and are serving as possible support for price.  This is clearer on the 60-minute chart.

In short, we’re forming a tight coil and expect price to break strongly one way or the other out of this range very soon.

Let’s look at the actual S&P 500 on the 30-minute frame to see a bit of hidden bullish strength.

S&P 500 30-minute chart:

SP 500 30 minute chart

The above analysis for the DIA is similar to that of the S&P 500, but I wanted to highlight that we’ve broken last week’s highs and are challenging resistance from mid-January’s 850 to 855 range.

We’re also experiencing tight consolidation and a sort of triangulation in price in the index which should be resolved soon.  One could call it an ascending triangle (which is bullish) or one could say we’re at the upper range of a larger rectangle (which is neutral).

Whatever it is, the S&P 500 is showing slight relative strength to the Dow Jones at the moment.

Be prepared for a breakaway move and consider standing aside until we get it.  The Federal Reserve is meeting and will be speaking tomorrow so be prepared for the possibility of a big move either way.  Price has formed a tight balance and it might not take much to upset it.

Corey Rosenbloom
Afraid to Trade.com

19 Comments

19 Responses to “30 Minutes in Trader Hell”

  1. DaveB Says:

    If the after hours activity is any indication the breakaway move will be to the upside.

    Anyone who took the idea to go long if the $RUT broke 450 would be sitting pretty right now.

  2. Chance Says:

    I’m also watching C-SPAN in the House debating the stimulus. Most of the republicans seem to either not be in favor altogether or don’t want to see pork added to the bill.

    Aftermarket, the financials are up modestly on renewed rumors of a “bad bank” setup for the toxic debt.

    This could be a wild few days if the GDP and employment numbers come in overly negative after votes on the stimulus or a “bad bank” plan.

  3. mike turner Says:

    Corey,
    Thank you for the reality check. I am new to trading (you can blame me for the current mess we are in-ha!) and tried a couple of times this week and last (small lots) to test the water and kept getting stopped out on no follow through. I went surfing today after deciding to wait for a direction. I can see we are ready for a break – but will the first one be the fake out? Mike in Pensacola

  4. DaveB Says:

    Actually the after hours rises aren’t so much as to ensure a big up day tomorrow, got a little ahead of myself, XLF only up 4.3% after hours. It’s at $9.54 which I misread as 9.54% LOL! Looks like we’ll have a higher open at the least, what happens after that is anyone’s guess.

  5. Corey Rosenbloom Says:

    Dave,

    I’m leaning that way too (bullish) for the time being. We seem to have stronger intraday support than resistance, and all it will take is just a tiny push to throw all the shorts – of which I was one – off balance to cover.

    Course a downside break could happen, but it seems given the night market, odds currently favor an upside break.

  6. Corey Rosenbloom Says:

    Chance,

    You bring up a great point which is that there’s so much more out there other than the Fed Decision tomorrow. There’s the Bail-out bill, GDP numbers coming up, all that.

    The market is tightly coiled – I expect a big burst one way or the other tomorrow.

  7. Corey Rosenbloom Says:

    Mike,

    Excellent point! It was a rough last few days even for pro traders – I describe it trader hell. So many people I know lost money on balance last week in the chop. Surfing was a much better prospect, wasn’t it?

    If you’re going to get chopped up in waves, might as well be real waves instead of pixels on a computer screen!

  8. Joe_in_Indiana Says:

    I check after hours trading and certain stocks, namely financials, basic materials and ags are up. But TBT and SDP are also up. Would we expect higher rates even with this springing of the coil?

  9. Corey Rosenbloom Says:

    It may just be a day where shorts across the board get squeezed out temporarily. The morning’s open will shake everything out. I don’t pay enough attention to the after hours market, but on days when something’s big is about (expected) to happen, it can be quite valuable. Just remember volume is extremely low so any move can be amplified quickly and then faded back down at the open when people start trading.

  10. Not AfraidofTrend Says:

    In the current market, a gap up open is being used as a selling opportunity.

    The after hours volume for ES futures is very low. It takes a lot less money to cause an overnight “rally” in the ES futures. I watched the jump in ES futures today just after 6 pm EST. Someone just bought all the asks and ES jumped up from 838 to 848 within seconds. This kind of manipulation should be banned. I won’t call it genuine breakout.

    What do you think?

  11. Vasu Says:

    Corey :
    Any way to think that what’s formed is a symmetrical triangle and that it can be a continuation pattern to the already bearish trend ?

  12. NotAfraidofTrend Says:

    Vasu, Thanks for bringing this up in the midst of the bullishness. To me, at least, it appears that we are completing a belated 4C up. Then we should get wave 5 down.

    If you good at today’s gap and the gap on 10/28/2008, we have a island below. This would be UTTERLY bullish. I don’t think it can be supported by the current economic scenario. In other words, the gap up open today WILL be closed, IMHO. But, I have been wrong before!

  13. NotAfraidofTrend Says:

    Correction: “If you look at …”

  14. NotAfraidofTrend Says:

    Another correction: The date above should be Jan 14, 2009. Sorry!

  15. Corey Rosenbloom Says:

    Not Afraid,

    I might not go as far as call it manipultion, but I do know I put little emphasis on overnight sessions. I learned that a few times when I’d have an open stop-loss on a swing trade in the @YM that would get tagged overnight but nothing would really happen at the open. Because of that, I don’t hold open futures positions overnight at least with stops.

  16. Corey Rosenbloom Says:

    Vasu,

    If anything, it’s a rising or ascending triangle. I don’t see anything symmetrical right now because of the horizontal support line.

    As of this comment, we’re breaking to the upside and we’re likely to get a continuation move up so no, as of right now, it’s not a continuation pattern.

  17. zerk Says:

    yes your right. As you continue writing your blog i am hoping that you can rock everyone`s mind as you rock my mind. Thanks and more Power.

  18. NotAfraidofTrend Says:

    Corey, it appears that my postings get trapped in your spam filter quite often. So, I am just repeating what I had posted yesterday morning.

    I had posted that this rally, and the breakout of the horizontal line, is just another bull trap. In fact, it appears to be reenactment of the bull trap on Jan 6, 2009, huge gap up open on one day (exhaustion gap) and then a gap down open the next day. We should soon be testing the 800.

  19. AtT Best of 2009 Part 1 | Penny Stock Trading System Blog Says:

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