Monday’s trading day gave us some interesting opportunities worth discussing, in terms of “Trend Day,” reversal, divergences, etc. Let’s step inside yesterday’s action to see key opportunities as they developed.
SPY 5-min March 16, 2009:
Looking at the 5-minute chart without the context of the higher timeframes reveals the day shaping up to be another Trend Day.
We had an opening gap (that didn’t fill) and then price supported comfortably on the rising 20 EMA each time (setting up excellent/ideal low-risk entries). A negative momentum divergence was pervasive, but we should always overrule oscillators on Trend Days.
However, ’something went wrong’ in terms of the Trend Day thesis. Price formed a doji at 1:30 which was the intraday high on a multi-swing negative momentum divergence, then price broke the rising 20 (the first clue that put the Trend Day concept in jeopardy) though it supported (as expected) on the rising 50 EMA.
However, that support bounce didn’t last long. Price careened beneath the 50 which should have taken out any stops for traders playing for a Trend Day. Next, my favorite trade set-up – the Cradle Trade – as the EMAs crossed bearishly and price ran up to test this confluence resistance level. I deem this spot – right around 3:00 pm – to be the Best Trade Opportunity of the day.
If the Cradle held, then it would open up the potential to play for a large target via a trend reversal, which is exactly what happened. Price fell to new lows and filled its gap, closing down on the day. The NASDAQ Index suffered an even worse (negative) fate, while the Dow Jones and S&P 500 held their own, closing slightly down.
Reference yesterday’s intraday post where I highlighted odds favored an intraday reversal as the S&P 500 came into confluence Fibonacci Resistance, and a Three-Push Reversal Pattern seemed to be completing itself on the 60, 30, and 15 minute charts intraday charts. That screen-cap I made turned out to be the price high as price failed to overcome that significant resistance area.
Combining multiple timeframes can help clue you in to additional opportunities as they develop which can’t be seen on a one-dimensional view of the intraday markets.
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