Intraday Range Compression This Week

Jan 23, 2009: 10:53 AM CST

Let’s take a quick look at the intraday structure developing currently on Friday’s morning trading for clues to a possible range expansion move yet to come.

S&P 500 15-min chart:

I’ve been saying something is ‘off’ or ‘unhinged’ this week and now perhaps I have a better picture to explain that.  As of 10:30am EST on Friday’s trading, the price action since Tuesday’s close has been completely within the range of Tuesday’s high and low, which is a very odd development that underscores market uncertainty, lack of direction, and range compression.

Look at January 20th 45 point range from 850 to 805 and notice that each day’s high and low since then to present has been ‘trapped’ within that range.  It’s quite odd for price to go this long trapped inside one candle (or bar) on the daily chart and it’s a signal of directional uncertainty… or more accurately, it represents balance (or ‘value’) between buyers and sellers.

Also, we’re forming some sort of triangle or consolidation pattern.  I’ve drawn two trendlines to show the compression – one of which is more ‘classical’ which connects spike highs and lows and the other trendline runs through meaningful closes, cutting off the spikes (wicks).  Either way, we are consolidating into a narrow range.

Keep watching these zones between 810 and 835 for any price breakout which could lead to an expansion move up or down… more likely down but it’s best to wait for a break than to try to chance it sometimes (at least from a risk-reward standpoint).

Be prepared for a fast  moving market to break soon – it might not be Friday – but after a price consolidation move as we’re having now, price tends to break into an expansion move.  Take advantage of that if it comes.

Corey Rosenbloom
Afraid to Trade.com

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10 Comments

10 Responses to “Intraday Range Compression This Week”

  1. nnecker Says:

    Hi Corey,can you do a one year wave count on the xlf.I think we have made a bottom on it .What do you think.Thanks.

  2. Corey Rosenbloom Says:

    Nnecker,

    I’ll try to do a count there – can’t say for sure if a bottom is in place yet. I’ll do an analysis this weekend. Thanks for the inspiration.

  3. Phoevos Says:

    My bias at the moment is a move lower.

  4. Anonymous Says:

    Corey, I think we are still in an up wave to 900-1000ish before breathtaking plunge to 600…

    You should have been on this list. 25 best blogs.

    http://www.247wallst.com/2009/01/it-has-been-ove.html

  5. Anonymous Says:

    Corey,

    Gold surged 4.31%, on a wave 3 impulse according to my count. Is this telling us something about the stock market direction?

    Thanks!

  6. Anthony Says:

    Corey,
    Thank you for your valued comments. As an options trader I see the high option Implied Volatility across most stock options, as a sign of great uncertainy & most of the time it is to do with a possible downside move. 5 year & 10 year Fed Notes also painting a similar picture? I agree with the previous comment your blog should be on the top 5 blog list.

  7. Corey Rosenbloom Says:

    Anon,

    Aww maybe next year. Thank you for providing the list though!

  8. Corey Rosenbloom Says:

    Anon,

    Impressive move indeed. If we can break $820 per ounce which was previous significant resistance, it could be a sign investors are flocking to gold and perhaps away from paper like stocks so that would be bearish. We’re seeing a strengthening position of gold against a weakening or at least consolidating equity picture. Higher gold prices would likely be bearish for equities, though perhaps not 1 to 1.

  9. Corey Rosenbloom Says:

    Anthony,

    I’m honored! Thank you so much for your support.

    It’s strange – it’s been quite a volatile week but each day brought something new and in the end, all we did was stay within Tuesday’s range all week, compressing price. I would think at least a little of implied volatility has declined as prices narrowed. Of course, I’m expecting a breakout move next week from the consolidation.

  10. Anthony Says:

    H Corey,
    Anymore insights into the intraday compression. The breakout from the 835 level was short lived.
    Thanks