2008 is finally behind us and the year ended on a positive note – a nice, solid trend day to the upside.  Let’s look at the DIA intraday structure to reflect on this pleasant picture.

DIA 5-min chart Dec 31, 2008:

This is what a trend day should be – except for the close, that is.

We had a nice run from the start the resulted in a “Three Push” reversal pattern that resulted only in a retracement to the rising 50 period EMA.  Until that point, any pullback was a safe buy-zone, while the 50 remained the “last line of defense” for the bulls and also served as a support buy-zone.

Price bounced sharply off the second test of the rising 50 EMA to tap new intraday highs before forming more choppy retracements back to the rising 20 EMA into additional new price highs around 3:30.

The only thing that tarnished today’s trend day move was the last 30 minutes of trading, where price formed a bearish shooting star at the upper Bollinger Band on a negative momentum divergence which preceded price reversing sharply end the day just beneath the 50 EMA.  Day traders should exit at or just prior to the close each day.

A few readers have commented on the appearance of negative momentum divergences on Trend Days and my resonse is generally to throw all forms of indicators (except moving averages) off the charts on expected trend days because they will (virtually) all give false signals.  Oscillators (Stochastic and RSI) will remain overbought all day and other indicators will be skewed as well, flashing sell signals as price continues to eek its way higher.

Look at the 3/10 Oscillator for an example.  As price continued its journey making newer highs all day, the momentum oscillator disconfirmed all highs as the day progressed.  There’s no point in trying to interpret it – sometimes it’s just best to turn off the indicators and focus your analysis strictly on one question?

“Is Price above or testing the 20 (and/or 50) period EMA?”

If we’re above it and the averages are in the most bullish orientation, then buy all pullbacks.

If we slip below it and close beneath it, take your stops and realize the trend day has ended.

Don’t try to get fancy – keep it as simple as possible.  Traders can stand to make the bulk of their monthly profits on trend days.

Continue to find additional insights in today’s price data and, even though today marks the end of 2008, the trading still continues each day.

Have a great time tonight!

Corey Rosenbloom
Afraid to Trade.com

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