Intraday Foibles, Flags, and Reversals

Jul 9, 2008: 8:20 PM CST

Today’s intraday action, like yesterday, was quite interesting and relatively difficult to trade successfully intraday.  Let’s look at the Dow Jones structure intraday and how it factors into the potential ’rounded reversal’ pattern on the hourly chart.

DIA 5-minute:

Price began with an upside gap – such gaps can occur after a strong close or strong previous day.  The gap was immediately filled, and price began to rally back to test intraday highs as expected, forming a rising channel in the process.

A persistent negative momentum divergence developed, and price formed a ‘double top’ formation before breaking down.  It’s remarkable how many times momentum divergences form the intraday highs and lows.

Price languished, consolidated, and then rolled over, breaking its 50 period EMA (which served as support) and then the averages crossed, signaling higher odds for continued downside action (a change in intraday trend).

This was confirmed with a ‘support bounce’ off the 200 period moving average, which formed nothing more than a classic bear flag into moving average resistance, which offered one of the highest probability trade set-ups of the day.

Price rolled over comfortably and effortlessly, shattering the 200 period MA before making new lows on the day, forming a classic flag (too weak to test the falling 20 period EMA properly) and closed roughly on the lows of the day.

Although the price action – which offered good opportunities – looks horrendously bearish, the structure of the 60-minute chart still shows potential support – until it is potentially broken.

DIA 60-minute (hourlies):

I mentioned in the previous post that a “Rounded Reversal” might be underway, and this view would be invalidated with a close beneath $111.50 (Dow 11,500) which price is threatening with all horrendousness.  Still, this is part of the potential rounding process – testing lower levels to see if sellers or buyers ‘step up to the plate’ and find opportunity at these levels.  Also, today’s action may have shooken out some of the disheartened buyers from yesterday.

If we go lower from these levels, virtually any bullishness short-term will be erased, but I still think there’s a good chance of at least a test of lower levels and an technical oversold (countertrend) bounce – but price will be the ultimate arbiter.  Keep a close watch on tomorrow’s intraday action.

Comments Off on Intraday Foibles, Flags, and Reversals

Comments are closed.