Browsing “Trade Set-Ups”

Massive TICK and Breadth Divergence on SPY Intraday

Jun 30, 2009: 12:59 AM CST

I wanted to share with you something I’m paying particular attention to - the TICK, Breadth, 3-Push Momentum Divergence, and Volume Divergence we’re seeing at these intraday levels in the SPY (and other US Market ETFs).  Let’s take a quick look to see what this might mean so that we can be prepared if prices start falling from these levels.

Without going into too much detail, take a look at a full, five-wave Elliott fractal move completing on a “Three Push” Negative Momentum Divergence - that’s often all it takes to trigger a ’short sell’ trade and play for a possible trend reversal with a stop placed a decent distance above the highs at $93.00 in the SPY.

We’re also seeing a slight volume divergence as price as risen in what appears to be a ‘counter-trend’ move up.

It’s possible that we’re forming the right shoulder on a daily chart Head and Shoulders reversal pattern… but let’s not get too far ahead of ourselves here intraday.

Looking beyond Volume and Momentum, let’s see what the Market Internals of Breadth and the TICK are telling us:

If you look closely at the TICK (middle panel), you’ll see that we peaked on June 25th and have been making lower highs ever since.  We’ve also just made a New TICK Low at -1,000 which is not the direction bulls want the TICK to be making.

What’s even more obvious is a Negative Breadth Divergence that began on June 24th and on each subsequent higher high in price, breadth (Net Advancers minus Net Decliners) has made a lower high, locking in a non-confirmation.

Let’s put it all together:

Complete 5-wave Elliott Fractal Impulse Up
Negative Volume Divergence
Negative TICK Divergence
Negative Breadth Divergence
“Three Push” Triple Negative Momentum Divergence

I would not want to be a bull at these levels and - although there is certainly no guarantee price has to fall from these levels - odds strongly favor downside action yet to come as opposed to higher price action… bulls are going to have to overcome a lot to keep this market rising with these many divergences forming.

Corey’s Note: This analysis is a portion of today’s report of my new subscription service “Idealized Trades Daily Report” (today’s full report is six PDF pages of charts and commentary) which will officially launch July 1st.  I’m allowing blog readers to head over to take a pre-launch sneak peak at the Premium Content/Subscription page and download sample reports and register/subscribe early.

Feel free to submit your email to stay informed and get bonus sample content not posted on the blog..

The subscription links are working, and a subscription also grants you access to archived daily reports dating back to April 2009.

Click on over to read about this new daily service and let me know what you think!  Thank you for all your support.

Corey Rosenbloom, CMT
Afraid to Trade.com

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Trend Day Down Lessons from June 22 SPY

Jun 22, 2009: 3:41 PM CST

Each day I write a ‘daily summary’ I call my “Idealized Trades” reports (which will be available for subscription by next week) and I wanted to highlight a few lessons from today’s (June 22, 2009) intraday Type III “Trend Day Down” in the SPY 5-min chart.

I mentioned Sunday that odds strongly favored lower prices going forward in my post “Has the S&P 500 topped?” and today’s Trend Day down fell right in line with the daily price weakness I described in terms of different divergences and non-confirmations.

So we began with a large, 1.00% morning gap down in the S&P 500 (and other indexes) which should have clued you in to be expecting a range expansion and possible Trend Day move.

We began with new TICK lows sub 1,000 right off the bat and a negative breadth (bottom panel) reading of -1,700 which trended down all day and hit a final low of -2,372, confirming the new price lows all the way down.

From the morning, it was clear that the best plays were to short pullbacks and retracements to the falling 20 EMA, particularly if confirmed with some sort of reversal candle (like a doji, engulfing, or shooting star) - I marked most of these simple pullback trades with red arrows.

Generally, you would place a stop just above the 20 EMA and as the moving averages narrowed, you would then shift up to use the 50 EMA as a trailing stop.

So as we progressed, we kept seeing New TICK Lows and New Breadth Lows on the day until we got a climax and doji at 1:30 EST.  One could have aggressively played a long here and anticipated a ’rounded reversal’ or failed trend day (meaning to expect that as the low) but in this case, we see yet another example of how playing long or trying to call the ‘bottom’ on a trend day is a loser’s game.

Today was a “Type III” or “True” Trend Day in the sense that we got a large morning opening gap and the market internals confirmed as price made new lows, and finally price closed on the low of the day - a Textbook Example.

Learn from this day and - if your performance wasn’t all it could have been today - use the lessons you learned the next time a Trend Day occurs.  Also, for more background, view my featured post “21 Lessons on Trend Days.”

Please join me as the MoneyShow.com rebroadcasts my presentation “Idealized Trade Set-ups for the Intraday Trader” on July 1st at noon EST - I’ll be there on a free live chat to answer questions through the presentation.  I describe how to identify “Trend Days” and today’s action is a perfect example of my lessons there.

Corey Rosenbloom, CMT
Afraid to Trade.com

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Gann Chart Art in the 10 Year Yields

Jun 18, 2009: 4:59 PM CST

I thought I’d try an experiment with the 10-Year Treasury Yields Long-Term Chart and apply a little Gann analysis in terms of squaring price and time to see what the result might be.

Here’s the “chart art” from my experiment which probably should be filed under “Interesting” as opposed to “Actionable.”

Ten-Year Treasury Yield “Chart Art”


(Click for Full-Size Image)

One of my clients calls this my “Mad Scientist” type experiements when I’m ‘cooking up’ new ideas or applying the deeper level technical tools such as Gann and Fibonacci, many times of which I don’t share publicly on the blog but I thought some readers might find this interesting.

I started with the orignal square on the left which comes off a secondary swing low (that’s important in Gann terms) and then squared the time and price by drawing in the diagonals to achieve a perfect square.

From that original ’seed’ (the move from 1965 to 1980 - 15 years) I then simply copied and pasted both the square and the diagonals to get the three resulting squares and subdivisions.

We’re most interested in seeing what happens when price comes into one of these ‘nodes’ or lines to see what happens in terms of support or resistance.

I highlighted some of the moments when price inflected off of these nodes - which still appears to me to be magic.

What gets me is that it called the exact top, in terms of doubling the square to the upside.  Price then retraced back to bounce off the bottom of the same square (around the 1980 to 1985 period) and then failed at the descending line.

We then found key support at the midpoint of the middle box in 1986 and then later the lower box in 1997.

If we’re trying to apply current analysis, it would seem that the 44.50 (which is 4.50% yield) could be a significant area to overcome… or perhaps we’re completely in a new square at the moment.

For those worried I’ll be changing my style - I won’t.  This is a test - this was only a test/experiment.

If there’s any Gann enthusiast readers, feel free to comment or contact me  - I’m a Gann neophyte but I find the geometrics very interesting.

Happy charting!

Corey Rosenbloom, CMT
Afraid to Trade.com

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The Potash POT Plunge of June 17

Jun 18, 2009: 12:12 AM CST

Potash (POT) fell 11% on June 17th, slicing through daily support and inflecting down off the 38.2% weekly Fibonacci retracement.  Let’s see all this up-close and learn a few lessons from this price movement.

Potash (POT) Weekly:

Without going into too much detail, focus on the closing high and low of the recent down-move and note that price was able to retrace to the 38.2% Fibonacci retracement (it makes no difference in this case if you truncate price spikes or not - using the spikes also produces the same 38.2% retracement).

Price hit this level at $121.70 and immediately inflected downwards, slicing weekly EMA support and breaking beneath the all-important psychological level of $100 per share.

If price continues lower, possible support would come in about the $80 level, which would reflect a prior ‘value area’ (price congestion) and the rising 200 week SMA.

Podash (POT) Daily:

On the daily chart, we also see a negative momentum divergence along with a complete five-wave Elliott fractal move up into the $120 resistance.  Both were early warning signs that ’something is amiss’ particularly when you add in the knowledge of the weekly 38.2% Fibonacci retracement.

Notice how price spiked up to this level above $120, formed a upper shadow/reversal candle, and then made one last dying gasp complete with three dojis (a tri-star doji pattern - three dojis in a row - is particularly bearish).

Today, we had a large volume spike and new momentum low not seen since 2008 - this is a sign that odds could (probably) favor lower prices yet to come.

Watch the $90 level for a possible retracement up but if momentum leads price, we will break this area eventually as well.

Lesson learned:  An observable five-wave advance that forms a negative momentum divergence into the higher timeframe 38.2% Fibonacci retracement often results in a signifcant price reversal - or at least proves too much for optimistic bulls to overcome.

Corey Rosenbloom, CMT
Afraid to Trade.com

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Weekly Comparison Charts of Ten Year Yields and SP500

May 28, 2009: 2:14 PM CST

With the recent rally in 10-Year Treasury Yields (falling note and bond prices), I thought it would be a good idea to show you the trend comparisons between the Yield and the S&P 500 - it’s more aligned than you might think.

First, let’s look at the 10-Year Treasury Note Yield ($TNX):

The thing that should leap off the page at you is the tight (though not perfect) strong positive correlation between the Treasury Yields and the S&P 500.  The Yields actually had a leading characteristic to the market, and the stock market led the peak on commodities.

This is consistent with Martin Pring’s “Intermarket Model” that I follow, which hints that bonds lead stocks and stocks lead commodities.

The Yields peaked when the Federal Reserve began cutting interest rates in mid-2007.  In February 2008,  I wrote a post (that actually got published on the Huffington Post at the time) entitled “Is Fed Easing Actually Good for the Market?” which was controversial at the time but spot-on given that the market fell so precipitously in the months and years after the cut.

I purposely did not annotate these two charts so you could get a quick comparison between them.

Next, let’s take a look at a simple chart of the S&P 500:

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