Chaotic Day – A Look Inside the Action

Nov 13, 2008: 8:11 PM CST

I feel like every day this week has provided a wonderland of strange opportunities to discuss on the intraday charts – today was no exception.  We experienced a 900 point swing in the Dow Jones from intraday low to high.  Let’s view this action and see what sense we might have made from it.

First, let’s look at the 1-min chart of the opening (a chart I saved because of its uniqueness):

It’s rare to see such an ‘equal swing’ in price.  Notice that as price made new lows into 9:50, the momentum oscillator formed a positive momentum divergence that preceded the reversal.

Also, note that the day began with a near perfect “gap fade” situation which was within the $1.00 gap territory.  After the first two minutes of up-thrust (often volatile), price moved strongly to close its gap quickly.

Price found resistance beneath yesterday’s closing price and the confluence of the 50 period EMA, but the buyers – with minimal effort – overcame these barriers to push price to marginal highs before rolling over as the sellers took charge for the remainder of the morning session.  One could almost call the morning a draw… until sellers swiped the bulls… only to be definitively defeated by afternoon bulls.

Let’s see the 5-min chart structure:

When viewed in this light, the morning action looks almost inconsequential – but that’s all a matter of your timeframe and perspective.

Price continued as expected in its downtrend, failing at key moving averages with the one exception of rising above the 50 period EMA just after 10:00am which likely snagged away any tight (or logically placed) stop-loss orders on the short-sell side… just before rolling back over to make a significant swing to the downside and destroy virtually any buy-side stop-loss orders.

As is the case when ‘big money’ or large-scale hedge fund plays are underway, price reversed suddenly, appearing to do so at no apparent or logical technical (chart) point before surging with violence and sustained movement to the upside for the remainder of the day.

The S&P 500 along with the NASDAQ and Russell 2000 all made fresh intraday lows today – the Dow Jones was the only major US Index not to do so today, which – at the moment – doesn’t necessarily say anything about relative strength in the general strength.

Perhaps funds had buy trigger orders simultaneously at those levels or perhaps it was a ‘herd effect’ or some other reason, or perhaps the market was quantitatively (or perhaps fundamentally) oversold and multiple computer (trading strategy) models all had similar price levels for “the bottom” or whatever parameter, but the buying pressure – and subsequent short-covering – was intense and is quite likely to carry over into the Friday session in some form.

Let’s see how far the bulls (buyers) can push this market and what might come of this sudden turn-about.

5 Comments

5 Responses to “Chaotic Day – A Look Inside the Action”

  1. David Says:

    Hi Corey , thanks for posting , check out my latest post, the TBond picture us kind of interesting. Hope your well.

  2. Joe Says:

    I like reading your posts, always timely and informative. Many thanks.

  3. Paul Says:

    Corey, what do you think about intraday lows and reversal? Would you say a successful test of previous lows? Or ideally, would you not want to see these new lows during the test?
    Thanks,
    Paul.

  4. J Says:

    Corey:
    Thanks for sharing the sentiments. I thought I must have missed something so “fundamental” or “technical” to see it coming.

  5. Corey Rosenbloom Says:

    Paul,

    I must say I wasn’t expecting such a sharp, sudden rally of this magnitude off the lows, but yes, I would consider it a successful test of the lows that will be officially confirmed with the upside breaking of the daily 20 period EMA.

    This would be a short-term buy signal via most swing and even perhaps position trading systems so we’ll see how that structure plays out.