Intraday TICK Divergences and Structure May 13

May 14, 2009: 9:49 AM CST

There were some interesting lessons to learn via the intraday action on May 13, 2009.  Let’s see some of them – particularly three TICK divergences and a fractal Elliott Wave pattern on the trend day.


(click for full-size image, hosted at Chart.ly)

First, we had a large-scale overnight gap (not scaled) which signaled that odds could be favoring a trend day.  The strongest trend days will gap down strongly and not even try to retrace a portion of the move, so the fact that Wednesday retraced a portion of the gap meant that odds for a “Type 3″ Tend Day were reduced… but we still got a powerful move.

A Bearish Rising Wedge formed (notice the 5-wave internal structure – classic textbook pattern) into the intraday highs on our first TICK Divergence.  I want to underscore the importance of TICK Divergences to you.

Price then ejected to the downside to retest the prior lows, and yet another TICK Divergence formed… which was good only for a small scalp as it was a counter-trend move (lower chance of profit).

Price then rolled back to the downside and formed another counterswing up into noon which then led to the strongest down-move of the day.

I’ve subdivided this wave into an Elliott Wave 5-wave Fractal, but more importantly, notice the positive TICK Divergence that formed once the five fractal waves had finished.  You’ll often see powerful inflections or reversals – often times absolute intraday lows – when you see this pattern:  An observable 5-wave structure that terminates into a TICK and/or Momentum Divergence.

Price did reverse, though not impressively, again because the overall structure was calling for a Trend Day Down.  Price chopped its way into the close.

On a separate note, the Breadth (net advancers minus net decliners) continued to trail lower all day (save for the end) which served as a strong confirmation of the continuation of the Trend Day down.

Review your intraday charts for similar lessons in order to better your skills at pattern recognition and intraday confirmation/non-confirmation (similar to what I’ll be advocating and teaching at the Los Angeles Trader’s Expo in early June).

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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10 Comments

10 Responses to “Intraday TICK Divergences and Structure May 13”

  1. tgarfield Says:

    Do you think – what ever major wave we are in that we are completing a 3-4 on the indexes before a wave 5 up?
    I figure that wave will be ever last bear giving in and covering. Some say it is the retail buying wave. I think it will be the retail covering wave. People have seen the money in shorting and they have attempted to be all over it. Just a thought.

  2. Ron Says:

    How did your charts tell you that the bounce to a higher high at would fail? It seems that the TICK did not show a divergence. Thanks.

  3. Ron Brown Says:

    My question refers to the higher high made at around 12:15. How did you know that this high would fail? I don't see a divergence in the TICK at this point? If you were short at that point, what signaled you to stay short? Thanks.
    (this replaces my earlier question which didn't indicate the time of day I was referring to.)

  4. meques Says:

    yep, yesterday i had almost the same chart.
    In reply to Ron Brown should tell that that divergences at 12:15 indeed realized but then it was one more push down. Saying more, with a tandem of divergences with 3/10 oscillator, stoch lines, rsi14 and etc i entered there and soon met stop loss. but i again entered after 1pm in more slear and strong divergence, so for the day i was in plus.

    wow, today was hard day for me with lots false signals and ugly incorrect divergences.

  5. Corey Rosenbloom, CMT Says:

    Ron,

    Good question – you really didn't know in advance. The only thing that could have kept you short was watching the 20 EMA and the 50 EMA. Price nipped above the 20 gently before falling (meaning don't place stops right at the 20) but also in Elliott terms, price made an “ABC” 3-wave corrective push (clear on the 1min charts). The line in the sand was a significant and powerful close above the prior high at $89.50, particularly on the 5-min chart. We didn't get that but we came oh so close. Remember they'll try to take out stops so it's best to ignore minor ticks/spikes when classifying structure.

    Iron stomach and conviction that the day would most likely resolve as a Trend Day. The TICK also failed to make a new high at that level, which would be expected if we were to get a reversal.

    My advice there would have been to take a stop-loss there if you felt uncomfortable and play to re-enter when price fell back below your stop-out, or have a steel stomach and hang in. There was no magic way to know price would reverse there as it did.

  6. Corey Rosenbloom, CMT Says:

    Haha – I've had some conversations with traders the last few weeks that would make your head spin. Along the lines of:

    “The market SHOULD go down or else” to
    “Hmm. It's too obvious the market should go down, thus it will keep going up.” to
    “Wait – no, it's so obvious that the market should go down, but it's also so obvious that people are expecting the market to keep going up because it should go down because everyone uses contra-opinion now, so really the market will actually go down”
    and worse!

    You actually bring up a good point that I hadn't thought of – that of the retail shorter. I sometimes still have trouble with clients and traders I talk with, getting them to be 'ok' with shorting. They're far more receptive now thanks to the market decline, but it's hard to shift the paradigm.

    But with more people jumping short – or getting into these 3x inverse funds – you bet it's going to lead to larger than normal short squeezes.

    Dark poetic justice if part of the viciousness and relentlessness of this wave up was due to that – I'll have to look into it more.

  7. u2com Says:

    My EW interpretation can be found at:
    http://scoutfinance.blogspot.com/2009/05/you-mu...

  8. Corey Rosenbloom, CMT Says:

    Yep – divergences aren't 100% – not even TICK divergences which you think would be. It'd be too easy if that were the case!

    I love seeing your charts – thanks for sharing.

  9. Flea Meds Says:

    Your picture explanation is really good…….. It helps easily understand TICK divergences…..

  10. Flea Meds Says:

    Your picture explanation is really good…….. It helps easily understand TICK divergences…..