Best Trade of the Day SPY Divergence Aug 10

Aug 10, 2009: 12:39 PM CST

I wanted to show a mid-afternoon “Best Trade” idea in the market today, which highlighted an internal TICK divergence with a momentum divergence as price filled the morning gap into the resistance area of Friday’s close.  Let’s see it:


(Click for full-size image)

I wanted to highlight this quickly to show how you could have profited from this very low-risk, high-probability position.

First, with a moderate size overnight gap, the initial “play” is to buy/long to fade the gap and exit at yesterday’s (Friday’s) close, which can be expected to hold as resistance.  Remember that an exit signal is not necessarily a “flip and reverse short” signal.

However, in this case, as price pulled up into this zone, we observed a multi-swing Negative Momentum Divergence on the 3/10 oscillator but more importantly, there was aNYSE  TICK Divergence as price formed the slight (so far) high of the day at $101.20 (or equivalent 1,007.75 in the @ES futures or other leveraged ETF).

The TICK divergence was more revealing than the momentum divergence, but as price formed two non-confirmations as price tested an expected resistance level, you could have entered short at any point as price began to inch down off $101.20, and especially when price broke the 1-min 50 period EMA.

The stop would have been just beyond $101.20 (perhaps $101.30 or greater) with a target of a test of the morning low (at a minimum) which was exited and achieved as I captured this chart to show you.

Barring any unexpected move up, the price you see here should hold as the high of the day.

This is an example of an explanation of a conceptual set-up that I explain to subscribers every day in the Idealized Trades Summary reports.  The goal is to understand these patterns, know what to look for, know how to recognize day structure and opportunities so that you can trade them in real time each day as they repeat and set-up.

Please take a look at the more information page of the new Premium Section of Afraid to Trade for subscription information (at $27.00 per month).

The more you see these patterns each day, the better you’ll be and more confidence you’ll have to trade these set-ups appropriately in real time.

Corey Rosenbloom, CMT

8 Comments

8 Responses to “Best Trade of the Day SPY Divergence Aug 10”

  1. Bob Says:

    The examples you've recently shown are all topping reversals… Do three push divergences also set up at the bottom of a downward move and signal a reversal?

    Thanks!

  2. David Says:

    Corey, I know this is off topic, but I thought that if I replied to the original topic you wouldn't see my question.

    It regards the fibo arc on Intel from last week where you said:

    “The best way to do this is to draw a 45 degree screen angle and overlay horizontal and vertical gridlines and ensure that 45 degree angle begins at the lower left of any square and runs through the top right of subsequent squares.”

    I don't understand what you mean when you say “draw a 45 degree screen angle”.

    I've been able to make it look very close to yours, but it's still a little off. I've overlayed a grid and it shows that the problem is probably the time axis because the months have different lengths. What am I doing wrong?

    Thanks.

    By the way, Bob, to answer your question, yes these 3-push reversals work equally well in both directions.

  3. Corey Rosenbloom, CMT Says:

    Hey David,

    No problem! Great question.

    For me in TradeStation, there is a trendline tool which allows you to click on a setting to “draw trendline using screen angle” and I set it to 45 degrees to equivocate price and time by drawing a grid where the connecting squares match this angle.

    However, because months are differing length (particularly February) then a perfect chart is difficult if not impossible under normal circumstances. There will be slight variations depending on how we form our squares.

    If anyone knows a method for making a chart perfectly 'square' in terms of the time and price axis, please share with us here in the comments.

  4. Corey Rosenbloom, CMT Says:

    Hey Bob!

    Absolutely – the pattern works in reverse as shown above.

    It's like any TA pattern such as a flag or head and shoulders, etc.

    My favorite is when we make a gentle three-push to the upside, signaling downward reversal and then form a second one to the downside, signaling upward reversal. That would indicate a smooth transition from buyers to sellers and back again.

  5. Bob Says:

    I don't have the tick option available with my trade platform. Is there another oscillator that is similar?

  6. Corey Rosenbloom, CMT Says:

    Hey David,

    No problem! Great question.

    For me in TradeStation, there is a trendline tool which allows you to click on a setting to “draw trendline using screen angle” and I set it to 45 degrees to equivocate price and time by drawing a grid where the connecting squares match this angle.

    However, because months are differing length (particularly February) then a perfect chart is difficult if not impossible under normal circumstances. There will be slight variations depending on how we form our squares.

    If anyone knows a method for making a chart perfectly 'square' in terms of the time and price axis, please share with us here in the comments.

  7. Corey Rosenbloom, CMT Says:

    Hey Bob!

    Absolutely – the pattern works in reverse as shown above.

    It's like any TA pattern such as a flag or head and shoulders, etc.

    My favorite is when we make a gentle three-push to the upside, signaling downward reversal and then form a second one to the downside, signaling upward reversal. That would indicate a smooth transition from buyers to sellers and back again.

  8. Bob Says:

    I don't have the tick option available with my trade platform. Is there another oscillator that is similar?