Intraday Action – Surge and Plunge

Jul 11, 2008: 8:36 PM CST

Friday’s intraday action in the major US Indexes was nothing shy of stellar, given all the potential economic turbulence that set-up during the day.

Let’s look at the DIA – Dow Jones ETF 5-minute chart:

The day opened with news that Freddie Mac (FRE) may be in severe trouble, and then rumors of a financial collapse occurred, and the index lunged around almost helplessly.

However, there was structure that played out in the index – at least for the first half of the day.

The day’s action opened with an overnight gap that rallied back to resistance via the falling 20 period EMA, which set up the day’s first short (provided you missed the sudden gap-fill trade).

Price formed a doji and then orderly rolled over to hit new lows on the day, before experiencing coiling action about the 20 period EMA (which also set up some ‘scalp’ trades).

A multi-swing positive momentum divergence formed all day, which sprung (like a coiled spring) into the afternoon session, slamming the short-sellers and invigorating the once helpless bulls – only to slam the bulls as well.  Trading the afternoon session was extremely difficult – it very much resembled a Fed-Day pattern.

Stocks closed lower on the day, but the losses were not as bad as they could have been, and actually the day went positive at one point.  Today’s action will be classified as a ‘gap-fade’ intraday as such.

Volatility has returned, and it is difficult to trade the market long and short, so do monitor your stops and trade smaller positions if you feel you need to.  Try not to get caught up in the ‘heat’ or emotions of the day.

1 Comment

One Response to “Intraday Action – Surge and Plunge”

  1. Anonymous Says:

    This article explains why these moves often happen after 2:30pm.

    Front Running A Systemic Market Crash: PPT Style