Amazing Intraday Plunge

Jul 7, 2008: 11:40 AM CST

The Stock and Index Futures market recently plunged precipitously and are currently trading at session lows due to increased uncertainty about the state of the economy.  Let’s look at the plunge and the pattern preceding it.

The chart shown is the @YMU08 or Dow-Mini futures contract (instead of the DIA, which I normally show).

Price had been steadily trending higher this morning, and then surged to the upside as the market opened and then formed a classic consolidation pattern or roughly symmetrical triangle before absolutely plunging through multiple Support Pivot levels and making a new significant momentum low.

From the triangle apex just under 11,360, price has fallen 146 points (at $5 per contract) in the last 20 minutes (each bar is 5 minutes).  This is a stunning turn of events, and a clear example of why stop-loss orders are essential.  You just never know how far a move will trend against you, and through trading this event, the liquidity just wasn’t there even to get short – it happened so quickly.

This was clearly one of those “if you step away from the computer, you’ll miss it” moments.  It’s a testament to active intraday trade management.

Also, notice how, in strong moves, intraday pivot levels melt away like butter.  The Blue dotted line was the “Daily Pivot” with the next two above it being R1 and R2, and the two below the blue pivot line being S1 and S2.  None were able to sustain the selling fury and intensity of the bears.  As I write this, it appears that S2 is holding, but I can’t remember a time where we’ve fallen from above R2 to S2 in such a short amount of time.

Today indeed is a fascinating day so far.

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