Daily Diamonds – Volume and Resistance Insights

Dec 23, 2008: 5:47 PM CST

There’s interesting slightly conflicting technical signals on the DIA – the Dow Jones ETF daily chart.  We’re seeing bearish overhead resistance confirmed by a bearish non-confirmation in volume… which is developing underneath a positive momentum divergence.  Let’s see if we can sort this out.

DIA Daily chart:

I separated the volume bars to highlight the non-confirmation or negative divergence in volume that appears to be coming to a resolution (as price moved higher, volume moved lower).  Generally this is quite a bearish development, and the resolution is expected to resolve to the downside (under the hypothesis “Volume Precedes Price”).

Also on the bearish side, we have key resistance coming overhead from the falling 50 day EMA, which has held as resistance officially three times since December.  Notice on the last test, price formed a “doji” (specifically a tiny ‘gravestone’ doji’) which is bearish at resistance.  Price scuttled four days to the downside following this technical development.

Also, regarding the momentum oscillator, if you look extremely closely at the last three mini-price swings, we see that they formed a mini flat-line divergence (actually a small negative divergence) which, when combined with overhead resistance and a developing volume divergence… that paints an unfavorable picture for the bulls.

Price is coming off (resolving) a positive momentum divergence, but it’s possible the divergence has already worked itself out of the system, having retraced to its target of the 20 (and then 50) day EMA.

Price has also broken beneath a small-scale rising trendline (blue line) which is also unfavorable for bulls.

Larger scale support at roughly $80.00 still seems to be in-tact, but if bears take us beneath that level, do look out below.

Keep watching this chart and the other US Equity Indexes for clues of possible price moves.  Time’s running out for the famous “Santa Claus” rally that often occurs at the end of the year.

Be safe,

Corey Rosenbloom
Afraid to Trade.com

11 Comments

11 Responses to “Daily Diamonds – Volume and Resistance Insights”

  1. David Says:

    Thanks Corey, this seems to portend to the intermediate 3 being in play as suspected. Todays failure at former support was telling.

  2. Corey Rosenbloom Says:

    That’s right – I’m probably 95% convinced now.

    A break below $80 would drive my ‘convinced’ level to 99% and certainly a break to new lows would erase any doubt at all.

    Good call!

  3. Don-Da-Mon Says:

    Is this “intermediate 3” in reference to a previous elliot post? If so, which scenario in that post are you more convinced?

  4. Corey Rosenbloom Says:

    Don,

    Right, intermediate 3 of the larger 5-wave structure. I had hoped this move was the larger 3, meaning the impulse down was probably half-way done.

    It now seems that we’re ending fractal wave 4 of larger scale 3 (of big C), meaning fractal 5 perhaps is about to come and terminate the big 3… which then lets us rally up into large-scale 4.

    It could get bad.

  5. Anonymous Says:

    It is also possible that we are already in the fractal 5, if you think the ascending triangle from Nov 21 to Dec 17 as the fractal 4. What do you think this possibility?

  6. NotAfraidofTrend Says:

    It is also possible that fractal 4 up of big 3 is not yet complete. It appears that C of fractal 4 did not go high enough, compared to the A of fractal 4. In that case, we should be seeing higher highs than 921, before we can say that fractal 4 is complete. However, if the high of 921 marks the completion of 4C, then we are already in fractal 5.

    In other words, we can go either up or down from here. That’s why Elliott waves don’t have much of a predictive value. They look great only after the fact!

  7. NotAfraidofTrend Says:

    The A of fractal 4 started at 742 and took us up more than 100 S&P points. If 921 was the completion of 4C, how can we have such a puny C compared to A? Normally, the Cs are much more powerful compared to As. Point to ponder!

  8. NotAfraidofTrend Says:

    4Bs are always terrible as they are, being a smaller corrective wave within a larger corrective wave, the most unpredictive of all. Only a powerful 4C, compared to 4A, can mark the completion of 4. We can’t trust 4Bs!

  9. NotAfraidofTrend Says:

    A “Santa Rally” can start even after Christmas. Moreover, because 91% of the time the January move determines the rest of the year, and early part of the month determines the rest of the month, we can be sure that rallies will be attempted very soon. It will be risky to go short, so, at least, let us never trade without the stops!

  10. NotAfraidofTrend Says:

    At this time, in order to mark the completion of fractal 4 up, I will only trust a powerful 4C up. However, I could be wrong, so please don’t trust me!

  11. NotAfraidofTrend Says:

    I wonder what Fibannaci Retracement and Fibannaci Time have to say about the completion of fractal 4?