A Little Elliott Wave on 1 Minute Chart into the SPY Close

Apr 8, 2009: 10:52 AM CST

I wanted to show you an interesting Elliott Wave fractal that set-up into the close of the trading day for April 7th on the 1-minute chart – mainly to show the fractal nature of the Elliott Wave Principle.

(Click for larger image)

I’m also still keeping the TICK on the chart from last night’s post that focused on TICK Divergences.

Notice the Five-Wave structure that began off the 2:30 (EST) lows that continued until the final swift downswing into the close.  It’s not as interesting to just point out a five-wave structure, but look very closely at the sub-division of that structure:  Each sub-wave conforms to the Elliott Wave principle to highlight the fractal nature of expected Wave progression.

Waves 1, 3, and 5 all subdivide as expected into their own Five-Wave structures (with Waves 2 and 4 being a three-wave counter-move).

Remember the logic behind the waves themselves and why the ‘five wave’ structure is applicable across all timeframes:

Wave 1 is the “Doubt” Wave where people believe it to be still a false rally in the context of a down market

Wave 2 is the “I told you so” Wave where people expect a new low to be made, but it does not occur

Wave 3 is the “Realization” Wave where shorts cover and longs buy in while opinion shifts bullishly – that’s why 3rd waves are often so powerful

Wave 4 is the “Surprising Disappointment” Wave where people take profits, and traders are often looking for a support level to ‘buy into the dip’

Wave 5 is the “Euphoric” Wave where people get greedy and demand is exhausted as aggressive shorts step up – newer traders often ‘buy at the top’

As an aside, positive divergences often form going into Wave 1 and negative divergences often form going into Wave 5.

I though you might find this structure interesting, given that it occurred on such a small timeframe!  As always, the more times you see these patterns, the better you’ll be in real time to recognize them and take advantage of the opportunities that present themselves.

Corey Rosenbloom
Afraid to Trade.com

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TICK Divergences Yield Promising Signals for SPY April 7

Apr 7, 2009: 9:55 PM CST

I wanted to focus again on today’s intraday report on the simple TICK divergences that gave us powerful trading signals all through the choppy trading of April 7, 2009.  Let’s see them up close.

To me, a TICK Divergence is far more powerful than a standard oscillator divergence, due to the fact that we are looking at a portion of the Market Internals and comparing high/low readings with prior price swing highs or lows.

The TICK takes a snapshot of stocks that traded that second on an up-tick vs those trading on a down-tick, and can be plotted any way you want – I prefer bar or candle charts because you can focus on absolute highs and lows.  I also like to plot a 5-period Simple Moving Average of the TICK to smooth out the spikes and then compare MA highs/lows as well as absolute highs/lows.

We started the day with a powerful gap down and then price formed a TICK divergence right out of the opening bell, which was combined with a powerful hammer candle signal as price tested the day’s S2 Pivot.  Notice the green sloping arrow on the TICK when compared to the arc reversal on the price candles.

The second divergence came as price sauntered up to challenge the falling 50 EMA and the S1 Pivot.  Look very, very carefully at where the new Tick High formed: it formed on the second large up-bar as price cracked above the 20 EMA.  As price spiked yet again to test the 50 EMA, we saw a distinct TICK divergence set-up (which was even clearer on the 1-min chart).  Given the TICK divergence and price coming into two levels of overhead resistance, odds distinctly favored a down move that steadily occurred.

Notice that a New TICK Low occurred at 12:30 (CST) which hinted that a lower price low was yet to come, which did form both 30 minutes and one hour later… though those new intraday lows formed on a distinct Positive TICK (and momentum) Divergence – so many times a daily price low/high is formed on a key divergence.

This time price surged off the lows, breaking again above key EMAs with two powerful pushes, the second of which formed two bearish long upper shadows… and more importantly the day’s final Negative TICK Divergence. Price collapsed through the roof into the close, leaving only very aggressive and quick-thinking traders able to profit.

If you’re not following the TICK on your intraday charts, begin looking specifically for how you might incorporate TICK Divergences into your trading.  Continue studying today’s action for additional insights to prepare you better for the future.

Corey Rosenbloom
Afraid to Trade.com


Weekly and Daily View of Copper

Apr 7, 2009: 11:27 AM CST

A couple of readers have asked me to take a look at Copper prices, which have been tracing out a similar pattern to Crude Oil.  Let’s take a quick look at the Weekly and Daily charts of Copper, which includes as massive Rounded Reversal and recent Cradle Trade.

Copper Weekly:

Just like many other commodities, Copper reached a high mid-summer 2008 and then suffered a massive, unforgiving decline down into new lows into the beginning of 2009.  We’re seeing a similar arcing pattern to the upside, though it seems stronger in Copper than in Crude Oil which is coming off its own “Rounded Reversal.”  Crude Oil is currently challenging (and apparently failing) at its 20-week EMA while Copper made little work of breaking above it into the “Open Air” space between the 20 and 50 EMAs.

We see a positive momentum divergence coming off the October price lows that continued until the actual lows in December (notice the doji candle that marked the exact low so far).  Price is now in “Open Air,” meaning there’s not many reference points between $220 and $180.  Notice the confluence with the 38.2% Fibonacci retracement and the 50 EMA at the $220/$230 level.  Bulls will find that level difficult to overcome if price can even rally that far.

Copper Daily:

Dropping down to the Daily Chart, we see a closer view inside that lengthy positive momentum divergence that began in October and continued until December (again, notice the dojis on the daily chart at the lows).  Price found key resistance (which also was good areas to place short-sell trades) at the 20 day EMA (a good place to trail a stop) through the decline.

Finally, as 2009 began, Copper broke that 20 EMA which set-up a “Magnet Trade” to test the 50 EMA.  Notice the New Momentum High that set-up on this break. It did so and became ‘wedged’ or trapped between these key averages in a consolidation (Value Area, rectangle) until price surged out forming a new high at $170 and officially confirming the daily trend to Up, and also setting up the “Cradle Trade” which is the EMA crossover (“Golden Cross”).

The cradle held (notice the quick doji that formed into the Cradle – an extraordinarily high probability buy signal – which held.

If you look closely, we see a slight negative momentum divergence setting up into the higher prices as bulls challenge the $200 level.  This level could hold as ’round-number’ resistance, particularly if we get a down-move off this level.  It would set-up an “Exhaustion Gap” which is very bearish for price, particularly as it gaps into possible resistance on a negative divergence.

Continue to watch Copper Prices closely – if we’re going to have any sort of economic or stock market recovery, it would be perhaps foreshadowed and accompanied by continued strength in Copper.

Corey Rosenbloom
Afraid to Trade.com

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Double Top and Pivot Point on the SP500

Apr 7, 2009: 9:41 AM CST

Adam Hewison released an instructional and current video of the S&P 500 15-minute chart where he highlights a possible Double Top and then explains how to find the “Pivot Point” and calculate a Price Projection target off those levels (which almost came fully to pass this morning!).

Entitled “Intraday S&P 500:  Double Top and Pivot Point,” Adam explains these commonly occurring chart patterns and describes how they appear on multiple timeframes as well as how to recognize then trade them.

(Clicking the Image opens Adam’s video page to view the annotated chart)

In this example, he’s capturing the chart prior to Monday’s close and noting that a double top might be forming short-term.  He explains why the pivot point is important (which is the arc in the middle of the double top) for calculating the price objective, which you will see in the video was almost hit on this morning’s gap-down open.

Just like I do in my frequent intraday posts, the more times you see these patterns for yourself, the better you’ll be in real time to trade them when they develop.

Corey Rosenbloom
Afraid to Trade.com

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A Focus on April 6th Intraday TICK Divergences

Apr 6, 2009: 9:08 PM CST

A reader brought to my attention the TICK divergences and new TICK high that gave a clearer picture that the Day’s structure was NOT going to be a Trend Day but that odds favored a Rounded Reversal well in advance of the Cradle Trade.  Let’s zoom back inside Monday’s SPY 5-min and go under the hood to see the TICK internals in action.

SPY April 6 TICK Divergences

As price continued lower into the morning session, the TICKs continued to make lower lows and lower highs until 11:30, when a distinct positive TICK divergence came as price creeped to new lows (forming doji reversal candles).  A TICK divergence is often far more powerful than a standard momentum (oscillator) divergence because it ties directly into the “market internals” or Breadth (number of stocks on a current up-tick vs those on a down-tick).

I’ve highlighted so many times how intraday highs and lows are formed on Divergences.

Directly following the Positive TICK Divergence, price swung into the 50 EMA for resistance, but look closely at the significant new TICK high (all the way to 1,150) that was a hint that a Reversal was officially in place.  This reversal signal was aggressive, and came roughly two hours in advance of the “Cradle Trade” which was the official trend reversal zone.

The TICK could have both warned the Shorts to exit earlier and called the bulls out to play to the long side for an aggressive opportunity to capture a larger piece of the trend reversal.  Throughout the rest of the day, the TICK made new highs roughly each time price did, which further confirmed the move and hinted that the best strategy was to buy pullbacks.

That’s why I advocate close inspection of each day’s intraday action – you never know what you’ll learn that will help you in the future!

Corey Rosenbloom
Afraid to Trade.com

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