Market Follows Script Again with Failure to Fall and Popped Stops

Feb 25, 2010: 5:51 PM CST

I’ve been asking the question, rhetorically, “How many times will the market repeat the same pattern,” (see prior post for previous examples) and the answer is “at least one more time… today.”

What pattern is that?  And how can knowing the pattern help your trading?  Let’s take a look.

I described the pattern previously as:

Morning Weakness
Morning Rally into 20/50 EMA confluence
Break Through EMA confluence
SHARP rally higher into new highs of session
5-wave Fractal into Negative TICK/Momentum Divergences
Sell-off/weakness into close

The only difference today was that – though we did see negative divergences – price rallied into the close. Everything else was following the script of the prior pattern.

It almost makes me ask “Who is writing this script?!”

Our goal as traders is to try to anticipate the next likely swing in the market, decided if the risk/reward is favorable (target as it relates to our stop-loss), and then put on a trade if we answer affirmatively.

Studying market character can help us make better “If/Then” statements.

One of those today might certainly have been:

“IF price fails to fall as so many people expect, and then busts through the prior intraday high which happens to correspond with the 50 EMA, THEN I will put on a trade because I will try to take advantage of the intraday traders who are caught and must buy back to cover, generating a short squeeze… which has happened at least three times prior.”

You won’t know if the market is adhering to the script until we get the popped stops play, but after that, it becomes a matter of

“Now we have the new burst to intraday highs, let’s see if we get a pullback into support (2:00 CST) and then trade the expected “fifth wave” rally.”

That is two “If/Then” statements – the “Popped Stops Rally” and the “5th wave rally” that could have helped your intraday trading today.

Always study the intraday structure to see if there are bits of wisdom or insights that you can use and add to your growing trading arsenal.

For reference, see the prior two posts on this pattern:

How Many Times will the SPY Repeat the Same Pattern Intraday?

“Three Days in a Row Yields SPY Pattern Profit… or Peril.”

Corey Rosenbloom, CMT
Afraid to Trade.com

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

2 Comments

2 Responses to “Market Follows Script Again with Failure to Fall and Popped Stops”

  1. nqtraderjay Says:

    That was a sneaky move there at lunch, a guy's gotta eat…I missed it. So I need to prepare lunch now also and sit thru midday eating cold prepared lunch from the morning? Geez.

  2. nqtraderjay Says:

    That was a sneaky move there at lunch, a guy's gotta eat…I missed it. So I need to prepare lunch now also and sit thru midday eating cold prepared lunch from the morning? Geez.