Mid-Day January 7 Update Shows Dual Divergences Forecasting Reversal

Jan 7, 2010: 1:14 PM CST

It’s rare when a pattern this clearly emerges on the intraday chart, but so far mid-day on January 7th, the market is forming a dual TICK and Momentum divergence which gives odds favoring at least a deeper retracement at best or a reversal at worst by end of session.  Let’s take a quick look.

The is the SPY 3-min chart (a compromise between the 1-min and 5-min charts upon which I focus) which shows the 3/10 Oscillator and the NYSE TICK.

As price pushed its way to new highs at 11:30 CST, we formed both external (multi-swing) and internal (immediate swing) negative divergences – these serve as momentum and “market internals” non-confirmations of the recent price highs.

That’s not to say that price MUST reverse, but odds strongly favor it in the current context at the current moment (12:00 CST).

Watch to short any move under the prior swing low of $113.70, otherwise, the market will continue rising squarely against the (intraday) odds.

The alternate strategy to employ would be playing long above $114.00 to take advantage of the short-sellers stopping out (I call this “Popped Stops”) should buyers drive price into the ‘pocket’ of stop-losses located there.

Be safe!

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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