Bears Take Their Intraday Swipe

May 20, 2008: 6:48 PM CST

The US Stock Market Indexes fell 1% today, after selling off into the close on Monday’s trading, causing price to trade at lower levels far quicker than it rose to these levels. Let’s look at the Dow for clues regarding potential structural trades you could have taken.

The price began the morning with a sharp overnight gap which was little surprise given the rapid sell-off into yesterday’s close. Price also formed a near perfect bear flag into the close, yet the ‘elegant entry’ wasn’t signaled due to price gapping through the lower trendline of the pattern.

After surging lower in alternating, narrowed price swings, the action leveled off before making a final ‘flush’ to new lows around 2:00 when the growing positive momentum divergences ‘kicked in.’

During a trend-day style environment, it’s important to recognize the conditions early, get the trade on, and scalp around a core position, while playing any retracement to the 20 period moving average as a new entry.

In fact, there were some classic doji candle patterns that formed at or near the falling 20 period average that allowed for some very high probability (small target) trades with very little risk.

I have magnified many of the doji style patterns during the day, including the rare “tri-star” doji pattern that formed around 11:30.

The 12:30 doji at resistance via the 20 period moving average formed yet another golden trade and the final doji-style pattern came after 3:00 as price retraced up to the falling 50 period moving average.

Also, let’s look at the larger intraday structure via the 15-minute chart to see how much ground price lost over the recent down-swing:

Price declined to levels not seen since the 13th of May.

As mentioned earlier, the price rests at potential support via the 20 or 50 period moving average (depending on the index) so it will be interesting to see the development from here.

(The Dow was the weakest index of the day, falling 1.5% to the S&P 500 and NASDAQ’s just under 1%.  Oil prices reached new lifetime highs again today, gaining over $2 per barrel).

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