Today’s reversal in the indexes give us pause about the short-term continued bullish direction.  Let’s look at the multiple momentum divergences that have formed on the higher intrday time-frames.

DIA 30 minute chart:

On the 30 minute chart, we see the classic “Three Push” or “Three Swing” pattern, all three of which have formed negative momentum divergences.  Under the principle “momentum precedes price,” we can potentially anticipate a correction or ’sell-swing’ in prices in the short-term.

Negative momentum divergences often highlight the ‘loss of momentum’ on the side of the bulls/buyers, as higher buying pressure is slowly diminishing and ‘momentum’ or price acceleration declines.  An object in motion often slows before it stops and reverses, and prices in the market place often follow this pattern.

In addition to the momentum divergence, volume has been diverging as well.  Higher prices are not being confirmed by higher volume, and higher prices on lower volume is often seen as a sign of bearishness as well.

On the 15-minute chart, the divergences are a little clearer - though there are four divergences that have formed.

DIA 15 minute chart:

I would classify this as a “lengthy” momentum divergence, one of which is being made on lower volume (which is evident on the chart).

Recall that the recent rally has occurred under the backdrop of a confirmed bear market where the higher time frames are in confirmed down trends.  Any such rallies are classified as ‘counter-trend rallies’ and can often occur and end quickly with little warning in both directions.

Be safe out there, and don’t overstay your welcome in the postions you are trading.