Intraday Elliott Wave and Flag Lesson in SPY June 16

Jun 16, 2009: 6:35 PM CST

What a day!  Let’s learn a few critical lessons from today’s trading activity, particularly in regards to how Momentum fits into Elliott Wave, how bear flags are confirmed with dojis, and more!

SPY 5-min:

Let’s take it step by step.  We had a negative momentum divergence (not shown) on a retest of the intraday highs of $93.30 at 11:00am.  Many times, intraday highs are formed on momentum divergences as both the high and low show as an example today.

Once price broke down into noon, we formed a new momentum and new price low at $92.60 – this hinted that lower prices were yet to come.

We had a shallow pullback that formed a messy bear flag, but the goal is to short the first pullback after a new price and momentum low which fell shy of testing the 20 EMA (which would have been an ideal entry).

As price broke back beneath $92.60, this was your entry short around 12:30 which would have positioned you in front of the ‘waterfall’ move down into the 1:00pm lows.

If you look to the one-minute chart, or can envision it here on the 5-minute chart, we formed a Three Push pattern (complete with momentum divergence)  into the 1:30pm lows which preceded a nice retracement move up that ended just shy of the 20 EMA on a simple doji for beginners or an evening doji star candle for more advanced traders.

I deem this (the retracement to $92.10) the ‘highest probability’ trade (though not the most profitable trade) of the day, since we had an Elliott Wave structure overlying us, a nice retracement swing up into EMA resistance, and a clean doji formation.  The stop would be placed just above the 20 EMA and the target would be a test of the prior lows at $91.80 or just beyond.

In fact, at 2:00pm, a hammer candle formed (also on a positive divergence) which signaled an excellent exit (of the short-sale).

Price meandered about this level which now looked like a complete 5-Wave formation… which meant the best trade was to go long at the termination of the 5th Wave.

We got a nice pullback that nipped above both the 20 and 50 EMA… but notice the long, upper shadow candles where price failed to overcome this level – signaling an exit for your long trade.  Price then plunged into the close, a testament to the higher trend in force.

Look back to my prior Elliott Wave “cheat sheet” on “The Best Trades to Take using Elliott Wave” and I describe the (in this case) short-sell the 4th wave after you recognize a big possible 3rd wave and then buy long once you feel the 5th wave down has completed – today’s price action gives a great example of this principle.

For those interested in Elliott, refer back to my prior two posts:

Elliott Wave Introduction Cheat Sheet
Elliott Wave #2:  Wave Labeling

as well as a prior intraday post similar to this one entitled, “Perfect Intraday Elliott Wave Example and Lesson” from May 22nd.

Do you have to use Elliott Wave intraday?  Absolutely not, but I’ve found it gives a little more confidence in the trades I’m already taking such as bull and bear flags along with divergences.  It just adds one more tool to your growing toolbox of trading strategies and tactics but – of course – is by no means required.

For those who are really interested, you may view 10 Free Lessons on the Elliott Wave Principle as taught by Robert Prechter by joining Club Elliott Wave International.

You don’t have to know all the rules of Elliott to trade successfully – focus on the big picture instead of the intricate details.

Corey Rosenbloom, CMT

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

12 Comments

12 Responses to “Intraday Elliott Wave and Flag Lesson in SPY June 16”

  1. Shuaib Arshad Says:

    Corey, I believe you are using MACD as momentum indicator (bottom curve) but your parameters are probably not the default (12,26,9). The default set smooths out some information that might be useful. What parameter set are you using?

    Thanks

  2. Gawed Says:

    love these days when everything you teach comes together for great entries. we only needed a good craddle to finish it off greatly lol!

    you know you should post a bit more about doji and shadows and that kinda stuff or is it as simple as you put it here to just look for dojis and for long wicks? i've never fully trusted candle studies but would love to know if they're reliable and when.

  3. Dominick Says:

    Thanks Corey!

  4. panepon Says:

    Thank you for your today's entry point(time and price).
    These details are very useful for me because of poor English understanding. I always read your intraday idea. Thank you again.

  5. Elliott and the Recent Down Move in SPY 15min | Afraid to Trade.com Blog Says:

    […] and the Recent Down Move in SPY 15min Jun 17, 2009: 1:14 PM CST // I mentioned last night in a lesson/example on intraday Elliott Wave that a fractal 5-wave structure had completed.  If we look up to the 15 (or 30) minute intraday […]

  6. Corey Rosenbloom, CMT Says:

    Thanks Panepon!

  7. Corey Rosenbloom, CMT Says:

    True! Maybe we'll get an upside cradle today!

    Never trust anything in isolation – but simple or basic knowledge of major reversal candles can help confirm trade entry or exit.

    For example, if you're looking to find a place to get short after a retracement up that you think is a bear flag in formation, it'd be nice to see a reversal candle such as a doji, shooting star, or engulfing as we pullback into resistance via a moving average or Fibonacci.

    I'm trying to point out these examples each day as they occur so we all can learn from seeing multiple examples.

  8. Corey Rosenbloom, CMT Says:

    Shuaib,

    You're right – I'm using a modified MACD known as the 3/10 Oscillator. You can get it by inputting settings 3, 10, 16 into your standard MACD.

    I wrote an article about that located here:

    http://blog.afraidtotrade.com/how-do-i-create-t

  9. Corey Rosenbloom, CMT Says:

    Thanks Panepon!

  10. Corey Rosenbloom, CMT Says:

    True! Maybe we'll get an upside cradle today!

    Never trust anything in isolation – but simple or basic knowledge of major reversal candles can help confirm trade entry or exit.

    For example, if you're looking to find a place to get short after a retracement up that you think is a bear flag in formation, it'd be nice to see a reversal candle such as a doji, shooting star, or engulfing as we pullback into resistance via a moving average or Fibonacci.

    I'm trying to point out these examples each day as they occur so we all can learn from seeing multiple examples.

  11. Corey Rosenbloom, CMT Says:

    Shuaib,

    You're right – I'm using a modified MACD known as the 3/10 Oscillator. You can get it by inputting settings 3, 10, 16 into your standard MACD.

    I wrote an article about that located here:

    http://blog.afraidtotrade.com/how-do-i-create-t

  12. Elliott and the Recent Down Move in SPY 15min | Penny Stock Trading System Blog Says:

    […] mentioned last night in a lesson/example on intraday Elliott Wave that a fractal 5-wave structure had completed.  If we look up to the 15 (or 30) minute intraday […]