Digging Deeper into the Recent Rally

Jan 4, 2009: 7:19 PM CST

The last few trading days have been a boon for buyers, but let’s take a closer look at the 15-min intraday chart of the DIA to see what kind of foundation underlays this move.

DIA 15 min:

At first glance, we see a powerful trend-move on the 15-min chart, as price rallied almost without pause from $84.00 to $90.50 in just over three trading sessions.

Notice how the 20 and 50 period EMAs crossed ‘bullishly’ early in December 30th and evolved into the “most bullish orientation possible” by the 31st.  Look closely at #2, which represents the strongest support trade on the chart, which reflects support from the confluence of the 20, 50 and 200 period moving averages.  That was probably the best long-entry on the chart (in terms of risk-reward and trend birth).

the next opportunity to enter long – from a moving average standpoint – came midday on the 31st and then at the end of the day, and also the beginning of January 2nd when price retraced to the rising 20 period EMA.

Pulling the lens back a bit, we see the classic “Three Push” pattern (which actually is a bearish reversal pattern) which corresponds with a complete five-wave upward Elliott Wave Impulse.

The momentum oscillator has registered negative divergences, but just like we practice on trend days, we must throw virtually all indicators – especially oscillators – off the charts, for what matters most in a trend move is the key moving averages for structure and trade entry/risk management.

A final point to which I want to draw your attention is the mysterious “large volume” bars that magically appeared at the end of the trading day, two times to the downside.  If you compare the rest of the day’s volume activity, the average 15-minute bar was less than 1 million shares (in the DIA), though these three outlier bars registered near 3.0 million shares alone.

I don’t mean to be too conspiratorial, but I think you should look a bit closer at those developments, which could be the footprints of “Big Money” potentially exiting into the rally… meaning potential bearishness could be ahead.

Nevertheless, take a look deeper inside the rally for additional clues that can help you determine price structure and probabilities both now and in the future.

Corey Rosenbloom
Afraid to Trade.com

17 Comments

17 Responses to “Digging Deeper into the Recent Rally”

  1. C. J. Corman Says:

    Hi Corey,

    Happy New Year!! I have been trading for about a year now and am happy to have found your website. What a wealth of great, honest information. You should be very proud of your accomplishments and are a true gentelman for sharing your information so freely with the rest of us. Keep up the good work and I will pass on this site to everyone I know who trades!!

  2. Anonymous Says:

    Hi cory I had my suspicion about the rally, one indicator I look at after 3-4 day rally is the 60 min. Stochas. Time and time again a overbought stochas always pull back. Habing said that i”m short the sso. So based on ew, we should expect an abc pull back. I find the we counts fascinating as I’v been more a TA guy. What do you foreceed?

  3. Anonymous Says:

    Corey, Thanks for the posting.

    It looks like that we are ready for some sort of a pullback.

    Even a 38.2% retracement of the move of SP from 853.50 to 932.50 should bring us back to 902.50.

    But it may first decide to retest 932.50?

  4. Anonymous Says:

    Thank for the helpful posts. A few trading ideas I have put in my own journal. For those interested you can take a look at http://www.chartsandcoffee.com. Mainly some bullish plays to balance out the shorts.

  5. Domincik Says:

    Hello Corey, why is the three push pattern a bearish reversal pattern? Is it because it corresponds to the Elliot wave count and we should expect the abc correction? I would assume it is different from a triple top.

  6. Anonymous Says:

    Hi Corey,

    I am new to this – what indicators and settings are you using on the bottom of the chart? I understand the ma’s and volume but do you use an ema on the 200 also?

    Great site – got it from markettime blogspot – another good place to visit.

    Doug

  7. Andrew Stanton Says:

    That count leaves wave 3 the shortest; perhaps 1-2, i-ii?

  8. Corey Rosenbloom Says:

    CJ,

    Thanks for reading and for your encouraging comments!

  9. Corey Rosenbloom Says:

    Anon,

    In a nutshell, odds seem to favor bearishness ahead, though I don’t know to what magnitude.

    I would advise to be careful using any oscillator during a sustained trend move such as this one – it will give false signals.

    There are even some strategies that, once a stochastic becomes overbought for more than 5 or so bars, the system enters long (and vice versa). During a trend move, the only thing I find that works is moving averages.

  10. Corey Rosenbloom Says:

    Anon,

    Looks like – as of this morning – we’re getting that pullback. Good job with the retracement levels.

  11. Corey Rosenbloom Says:

    Anon,

    Nice site. I used to do a hedged strategy where I’d have to have an equal amount of longs to shorts. It worked decently in late 06 and most of 07, but since collapsed, as virtually no long worked for all of 08 (not even oil).

  12. Corey Rosenbloom Says:

    Dominick,

    The “Three Push” is indeed a reversal pattern but it’s mainly of my own observation – I’ve never seen it in any TA textbook. The expectation is that it is similar to an Elliott 5-wave impulse but not exactly.

    The “Three Push” – unlike Elliott – has all three waves occur compressed and are roughly equal in price (unlike EWT where Wave 3 is expected to be the longest). It often occurs on a triple-swing negative momentum divergence.

    It’s almost like the bulls are giving it all they can (for three impulses) and then they give up.

  13. Corey Rosenbloom Says:

    Anon,

    I created a detailed post entitled “How I Set-Up My Charts” to shed light on my indicators.

  14. Corey Rosenbloom Says:

    Andrew,

    I thought of that when I drew the 3 and almost changed it once I published the graph. What I was going for was an Irregular “ABC” in Wave 4 instead of making Wave 4 just be one bar, though had I bumped the #3 up just a bit, it would have had a valid count.

    Also, I’m describing this as the “Three Push” bearish reversal pattern, which is similar to EW but not exactly the same. The Three Push has all 3 ‘waves’ be roughly equal and does so on a negative momentum divergence. It’s usually shorter than a few days so this is longer than an average “Three Push”.

  15. Gucci Handbags Says:

    I don’t mean to be too conspiratorial, but I think you should look a bit closer at those developments, which could be the footprints of “Big Money” potentially exiting into the rally… meaning potential bearishness could be ahead.

  16. Gucci Handbags Says:

    I don’t mean to be too conspiratorial, but I think you should look a bit closer at those developments, which could be the footprints of “Big Money” potentially exiting into the rally… meaning potential bearishness could be ahead.

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