Intraday Semi-Trend Index Action

May 12, 2008: 8:59 PM CST

Today’s US Stock Market Indexes surprised us with a semi-trend day.  The day began with a perfect gap-fade and then gave us a ‘double-distribution’ trend day.  Let’s look at it!

In the DIA 5-minute chart, we see the day start with an opening gap that was filled and then the market trended in the direction of the original gap.  Remember that gaps initially are momentum impulses, and we expect momentum to lead price action.  It’s an excellent strategy to buy pullbacks in momentum moves.

Price then rose steadily and crested into a steady pullback to the rising 50 period moving average, setting up a better buy signal which rewarded the patient with higher prices.

I also pointed out this morning the “U-Turn Buy” that was developing on the indexes and I hope you profited from its development and resolution.  Such ‘steady’ moves can produce easy profits because the price action itself is so clean.

Let’s look at the 15-min SPY chart to get a better view of this pattern:

The red arrow represents the lengthy momentum divergence which preceded the U-Turn (or Saucer) set-up.

The signal to enter would have been (aggressively) when price breached the falling 20 period moving average and (conservatively) when it breached the 50 period (first purple arrow).

The confirmation zone, or strong trade idea, came as price pulled back cleanly to the rising 20 period moving average following a new momentum high.  The target would have been at least the 200 period moving average if not greater due to the structure of price.

Notice how – if you look at the daily chart – the $138.50 price area represented the daily 20 period moving average.  The balance gently shifted from sellers to buyers – such moments are amazing to watch unfold in the marketplace.

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