More Amazing Intraday Action

Mar 17, 2008: 7:13 PM CST

Monday was a day to remember in the US Stock Market. Let’s look quickly at what happened:

The Dow Jones (up 21 points today) showed the most relative strength today, thanks in part to JP Morgan Chase (JPM) which appreciated 10% today. Unfortunately, this came at the expense of Bear Stearns (BSC) which closed the day down 84% (closing just under $5).

Let’s peek at the intraday chart to see the volatile conditions and let’s see if we can make sense of them:

While gaps greater than 1% are less likely to fill (than gaps less than 1%), large volatility price swings (and gap fills) are not uncommon on days like this (after all, the last occurrence was January 22nd, 2007).

The first play (trade) is to trade to fill the gap (fade the gap) which was immensely profitable for those who were aggressive.

The second trade if the gap completely fills would have been a reversal trade to play in the direction of the initial gap or impulse momentum move (first red arrow at 11:00am).

This trade fell shy of its initial target (the opening price), but price rallied back to set-up another short-sell trade at 1:00pm that led to a practical momentum buy divergence that resulted perhaps unexpectedly in a large momentum impulse and a new momentum high. That was impossible to predict (from the structure), but the reaction (green arrow just before 3:00pm) was predictable, which was what I classify the “Impulse Buy” trade that launched price through yesterday’s close and onto new highs for the day.

A second momentum divergence (sell swing) set-up into the close as well.

The QQQQ ETF (NASDAQ) was not as lucky as to complete this ‘perfect’ pattern, and in fact the NASDAQ closed down 1.6% today.

Unfortunately, the NASDAQ made new lows for the year:

If the NASDAQ leads the market both up and down, this does not bode well for the broader market.

On a final note, crude oil prices (and some other commodities) plunged today, in anticipation of a potential economic slowdown. Crude Oil fell 4% today.

There are many more charts I could show, and I recommend browsing around and scanning today for your own set-ups across different markets and stocks.

Please recall that the Fed announces its Interest Rate decision tomorrow in the afternoon, and unless you know what you are doing and how the volatility can pick up madly at this time, I strongly recommend that newer traders sit this one out.

Trade safely in this environment.

4 Comments

4 Responses to “More Amazing Intraday Action”

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