Nov 2 Intraday TICK and Momentum Divergences Precede Reversal

Nov 2, 2009: 2:09 PM CST

Today’s morning session gave us another excellent example of how TICK (internals) and Momentum divergences can precede intraday reversals… or at a minimum, fail to confirm new price highs on the session which is a warning sign that traders can sometimes miss.  Let’s take a quick look at this example and the lesson it brings.


(Click for Full-size image)

The morning session opened strong with positive economic data driving the market higher.  However, as prices continued their pathway higher, market internals and ‘momentum’ were failing to confirm these new intraday highs.

In this case, as can often happen when similar divergences develop, the internals “caught up” with price and we had an intraday price reversal that flipped price movement from positive to negative within the span of a few hours.

The momentum oscillator is the 3/10 Oscillator, but it could just as easily be a Rate of Change or any other momentum oscillator.  The goal is to compare price highs to oscillator highs.  If the oscillator forms a lower swing high when price makes a higher high, then this gives us a negative momentum divergence as seen in the highlighted zone.

The TICK reflects market internals and reflects the difference in stocks “ticking” higher at a given moment vs those “ticking” lower.  TICK highs should logically confirm or go along with new price highs.

If price forms a  new high while the TICK index forms a lower high – as shown above – then this also is a negative divergence and serves as a non-confirmation of the price highs.

Just after 9:00CST, price formed a new high with the TICK index registering 1,073 more stocks “ticking up” than ticking down.  Later, after 9:30 CST (on the 1-min chart), we see an absolute new price high on the session, though the TICK index now registers 930, locking in the negative internal divergence.

Price then reversed from this level, leaving the TICK and Momentum divergence underneath the intraday price highs.

I go deeper into describing this, along with many other set-ups, opportunities, and lessons in each day’s “Idealized Trades” Daily Report, which is both an educational service to teach you specific intraday trading insights via examining multiple examples of a concept, and a “what might we look to do tomorrow?” service in terms of levels to watch and structural opportunities of which to be aware.  Check out the page for more information.

Always compare market internals with price for a deeper, more insightful picture of what’s really happening beyond the flashing prices of the intraday charts.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

12 Comments

12 Responses to “Nov 2 Intraday TICK and Momentum Divergences Precede Reversal”

  1. terlyn Says:

    Tricky day today. Although the market was turning down, the volume has been low and sporadic on the inverse ETFs as of 2:25pm.

  2. Corey Rosenbloom, CMT Says:

    Very true!

    I would have suspected we would have endured further upside thanks to the way CNBC was describing how wonderful the Manufacturing report data were.

    Another example of how we should trust technicals (charts) over hype.

  3. Corey Rosenbloom, CMT Says:

    As a reference and update, the intraday lows – so far – were preceded with positive TICK and Momentum divergences at the 1:10 CST Lows.

  4. terlyn Says:

    On a 3-month daily chart, SPY is forming a doji. Sure feels like it. Not a good day to trade. I wonder if it will go up tomorrow and eventually form another “bump,” this one being the last on the overall rounded reversal or wedge.

  5. terlyn Says:

    Elliott Wave on FAZ worked out, I think.

  6. Nov 2 is a Day of Intraday Divergence Lessons | Afraid to Trade.com Blog Says:

    […] 2 is a Day of Intraday Divergence Lessons Nov 2, 2009: 3:22 PM CST // I wanted to follow-up from this morning’s post in highlighting the TICK and Momentum Divergence concept and note that we had two additional examples of the concept – making that three clear examples of […]

  7. terlyn Says:

    Tricky day today. Although the market was turning down, the volume has been low and sporadic on the inverse ETFs as of 2:25pm.

  8. Corey Rosenbloom, CMT Says:

    Very true!

    I would have suspected we would have endured further upside thanks to the way CNBC was describing how wonderful the Manufacturing report data were.

    Another example of how we should trust technicals (charts) over hype.

  9. Corey Rosenbloom, CMT Says:

    As a reference and update, the intraday lows – so far – were preceded with positive TICK and Momentum divergences at the 1:10 CST Lows.

  10. terlyn Says:

    On a 3-month daily chart, SPY is forming a doji. Sure feels like it. Not a good day to trade. I wonder if it will go up tomorrow and eventually form another “bump,” this one being the last on the overall rounded reversal or wedge.

  11. terlyn Says:

    Elliott Wave on FAZ worked out, I think.

  12. Nov 2 is a Day of Intraday Divergence Lessons | Penny Stock Trading System Blog Says:

    […] wanted to follow-up from this morning’s post in highlighting the TICK and Momentum Divergence concept and note that we had two additional examples of the concept – making that three clear […]