Analyzing Tuesday’s Intraday Action

Dec 3, 2008: 12:51 PM CST

Tuesday’s trading action in the US Equity Markets was a fascinating experience in some ways – from the filled morning gap to the rounded reversal to the end-of-day reversal rally – all of which took place in two observable Elliott Wave impulse moves worth viewing.  Let’s look at it all!

DIA 5-min chart:

The day began with an opening gap that filled rather quickly and effortlessly – those who were quicker had the edge in this gap-fill trade.  Price then found support at Monday’s close, formed a long-legged doji (potential reversal) and then surged strongly into EMA resistance (with a shooting star candle), forming a new momentum high.

Price retraced to the rising 20 period EMA which set up the “Impulse Buy” trade coming off the new momentum high.  Price then retested ‘confluence support’ via the 20 and 50 EMAs before breaking strongly back to the upside into new price highs on the day … but formed a negative momentum divergence (not drawn).

Ultimately, price fell back to EMA support setting up a potential buy which was quickly stopped-out when the large red candle sliced both EMAs on a closing basis.  The EMAs then crossed in a bearish cross and the market screamed to new lows on the day, revisiting and exceeding the prior lows slightly.

Ultimately, deja vu set in as price formed yet another long-legged doji (possible reversal) which was more of a “dragonfly doji” this time at prior support off a new momentum low.

Price rallied back to EMA resistance, setting up the “Impulse Sell” trade (off the new momentum low) and fell slightly but did not achieve its target (the prior swing low) as it reversed abruptly and surged into a push-pull pattern into the close on yet another new momentum high.  The end-of-day trading was quite volatile and offered few clean entries or abilities to manage risk (notice also that the pullback into 3:45 cleanly broke confluence support before stealing away possible stops and surging into new highs on the day).

As if the above chart wasn’t interesting enough, yesterday’s action formed a quaint Elliott Wave impulse pattern worth examining further that could have helped if you were ‘quick with your Elliott’ during the trading day.

DIA 5-min chart with Elliott Waves:

The gap served as a sudden “Wave 1” which led quickly to a Wave 2 that filled the gap.

Price surged higher into Wave 3, and the “Third of the Third” fractal wave (not drawn) actually (officially) achieved the new momentum high and the final fractal 5th wave formed on a slight negative divergence.

Wave 3 completed in the $83.40 range before pulling back in a clean “ABC” fashion to find support at the rising 20 EMA.  I sub-divided the final Wave 5 impulse into its corresponding fractal impulse as price achieved the final fractal and larger scale (though still very small scale) Wave 5 on a clear negative momentum divergence, hinting the bullish camp had done all they could do for the moment.

Price then reversed into a massive ABC wave down, the C wave of which also subdivided into its own bloody 5 wave fractal impulse (other interpretations can be made from this I’m sure).  Notice also how fractal wave 5 terminated on a positive momentum divergence as well – that is a common occurrence in my experience for fifth waves.

What the move down into 2:30 completed, price then reacted to news/expectations and surged strongly higher into the close, forming a quick 5-wave impulse without clean fractal waves to accompany it – the price x time axis was compressed into 1 1/2 hours.

Yet again, the final 5th wave formed on a slight negative momentum divergence.

We’ve experienced a large-scale gap fade this morning.

Take time to look over Tuesday’s trading for your own experience and insights.

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