One of the Best Intraday SPY Rounded Reversal Examples

Nov 21, 2009: 11:26 AM CST

Friday’s action gave us one of the best examples of the ‘Rounded Reversal’ Day Structural developments.  Let’s take a quick look at both the intraday SPY 5-min and 1-min chart and use this day as an educational reference of this concept.

One of the keys of a ‘Rounded Reversal’ is the early morning lengthy divergence.  As price continued to form lower lows off the open, the momentum oscillator and the TICK – with the exception of one spike – formed higher lows.

These developments – positive divergences – serve as non-confirmations of lower prices and hint – not guarantee – that a trend reversal is a strong possibility.

Rounded Reversals are the “Enemy” of Trend Days, but they reflect an orderly transition from supply (sellers) into demand (buyers) without a climactic spike of capitulation selling – it’s an orderly transfer of ‘balance.’

The Rounded Reversal is officially confirmed when price breaks above the 50 EMA on the 5-min chart, or forms a type of “Wyckoff Sign of Strength” or just a simple “Initial Sign of Strength,” being a new TICK and Momentum high when price has not yet formed a new high.

The Sign of Strength – or official point of “Type of Day” structural reversal occurred just before 1:00pm CST.


(Click for full-size image)

Sometimes you can see divergences – particularly lengthy divergences preceding trend reversals – better on the 1-min chart intraday, as shown above.

Rounded Reversals can be tricky to trade if you are not watching an oscillator or looking for divergences, though you can even see the “Rounded Arc” forming in price without the need of an oscillator.

See some of my prior posts on Rounded Reversals:

November 17:  Great Intraday Example of Rounded Reversal and TICK Divergence

September 30:  Interesting Intraday Example of Rounded Reversal in GLD

August 27:  The Anatomy of the Aug. 27 SPY Rounded Reversal

August 18:  SPY Rounded Reversal into Fibonacci Confluence

For a full description of educational concepts and opportunities on Friday’s trading day, as well as archives of each trading day since April with concepts and lessons and examples explained in detail, join my Idealized Trades member service.

The more you see and understand these concepts, the more you’ll be able to recognize them and then trade them successfully in real time.

Corey Rosenbloom, CMT
Follow Corey on Twitter:  http://twitter.com/afraidtotrade

2 Comments

2 Responses to “One of the Best Intraday SPY Rounded Reversal Examples”

  1. Bob Says:

    Rounded reversals resolve in an interesting fashion. In this example, the curve, defined by drawing a line thru the lows, forms a bottom that rounds up. At the same time, price is getting squeezed to the downside by the EMA's. This results in a compressing of price and often a formation of a triangle-like pattern near the bottom of the curve. The potential energy that builds generally results in an explosive coiled spring break out; the result of a trendline break and the “popped stops” effect.

    In longer term RR patterns, one often sees repeated attempts by price to round up. Failures can be identified by sudden fast price drops that yield new lows and an extension of the rounded reversal pattern. Such failures redefine the shape of the curve and set the stage for another attempted rally. After time has passed and wounds have healed, buyer's re-enter for another go.

  2. Bob Says:

    Rounded reversals resolve in an interesting fashion. In this example, the curve, defined by drawing a line thru the lows, forms a bottom that rounds up. At the same time, price is getting squeezed to the downside by the EMA's. This results in a compressing of price and often a formation of a triangle-like pattern near the bottom of the curve. The potential energy that builds generally results in an explosive coiled spring break out; the result of a trendline break and the “popped stops” effect.

    In longer term RR patterns, one often sees repeated attempts by price to round up. Failures can be identified by sudden fast price drops that yield new lows and an extension of the rounded reversal pattern. Such failures redefine the shape of the curve and set the stage for another attempted rally. After time has passed and wounds have healed, buyer's re-enter for another go.