Great SPY Intraday Rounded Reversal and TICK Divergence Nov 17

Nov 17, 2009: 3:54 PM CST

November 17th’s intraday SPY (and other Index ETF and futures) action gave us an excellent example of the “Rounded Reversal” structure along with a positive TICK and multi-swing positive momentum divergence marking the absolute low of the day and forecasting an intraday price reversal.  Sound complex?  Let’s look at it step-by-step.


(Click for full-size image)

I’ll discuss this in more detail along with other intraday lessons and trading opportunities for reference in today’s Subscriber Idealized Trades” report, but I’ll hit the quick highlights here.

As price began making lower lows on the session, the 3/10 Momentum Oscillator (information via this link) formed what appeared to be a triple-swing positive momentum divergence into the absolute lows after 10:00 CST.

That’s a non-confirmation of price lows and hints of a reversal, but there’s something that’s much more ‘powerful’ when it forms divergences in terms of forecasting – the NYSE TICK.

As seen by comparing price lows to TICK lows in the highlighted zone, as the SPY made its intraday swing low at $111.30, the TICK – a “Market Internals” Indicator – failed to form a new intraday low, and in fact formed its own clean and clear positive divergence.

While nothing is ever guaranteed, an absolute intraday price low on a multi-swing positive oscillator divergence which is met with a distinct positive TICK divergence places the odds strongly in favor of an intraday price (structure) reversal… and at least gives the opportunity for a short-term long (buy) trade.

For those so inclined to the ‘advanced’ work, notice that a 5-wave fractal move concluded as well at these intraday lows.

As price broke to higher highs and higher lows, as well as breaking a trendline (along with the 50 period EMA on the 5-min chart), the “Rounded Reversal” was officially confirmed and the upward bias was now officially in place, setting up retracement trades.

This is the kind of example and lessons that I will be discussing in this Thursday’s free Webinar

Best Trades to Take Using TICK and Momentum

You can register now at the MoneyShow.com to see live at the Las Vegas Expo this Thursday right after market close at 4:15 EST.

For more information as to the outline of the presentation, see my featured blog post on the presentation.

I hope to see you there!

Corey Rosenbloom, CMT

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Triple Measured Moves in SPY Show Market Character

Nov 17, 2009: 12:50 PM CST

Something interesting might be happening in the SPY chart, particularly with regard to the three most recent swing-ups in price – they have all been exactly equal in price moves (so far).

Let’s look at these three symmetrical swings – called “Measured Moves,” – and note the current level and how an exceeding of this level could hint at a shift in market “Character.”


(Click for Full-Size Image)

While this post is more of a study in recent history, it’s important to note the patterns that have developed over the last few months to see if these patterns or tendencies – also called “Market Character” – will repeat into the future.

If not, then we’ll know that the character is changing.

Observation 1:

Swing Lows have occurred at the very start of a new month, and then a strong rally has occurred, taking the S&P 500 to fresh 2009 highs each time.

Observation 2:

Swing Highs have occurred roughly in the middle of the month – near “Options Expiration” – and a sharp pullback – almost of a “Mirror Image” has occurred.

Observation 3:

On each swing up, price has rallied $8.41 in the SPY ETF (roughly 84 points in the S&P 500 Index)

Extrapolation into the Future:

If this pattern holds true once again, then we would expect to see the top of this swing soon and then an orderly pullback to take price back to the $105.00 level.

Caveat:

If price continues this week to make a new swing high and exceed the $8.50 swing in price, then that will be a hint that “Market Character” is changing and that we could no longer rely on these short-term observations to hold true into the future.

I took a look at similar logic in my October 21 post “Recent Measured Move Retracements in the SPY.

Let’s keep a close watch if the SPY makes a new high this week, and if not, then we could be looking directly at the “Pathway Ahead” for prices… just look to the prior three months.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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Supporting the Disciplined Investor Podcast Series

Nov 17, 2009: 11:14 AM CST

If you’re a big fan of Podcasts and enjoy financial commentary, you’ll likely enjoy the Disciplined Investor weekly podcast series, hosted by Andrew Horowitz.

Andrew is a colleague and good friend of mine and he has been a strong supporter of me and my blog, and I wanted to return part of that favor by mentioning the Disciplined Investor Podcast’s recent nomination in the prestigious People’s Choice “Podcast Awards” 2009 contest.

Andrew would appreciate it if you visited the Podcast Awards site while voting remains open (voting for 2009 closes on November 30th) and – if you are a fan of the Disciplined Investor and want to show your support – vote for his podcast series in the “Business Podcast” section.

You can also broaden your awareness of available podcasts across almost any subject you can imagine with the other nominees on the page.

Andrew has interviewed me on three episodes of the Disciplined Investor, including

September 20th, 2009Professional Lessons on Trading and Technicals (with Larry Williams and I as guests)

May 19th, 2008Making the Grade with Afraid to Trade

April 5th, 2009Elliott Wave Theory in Action

Using the “Elliott Wave Theory in Action,” I made the public call in early April that the S&P 500 was likely to travel up to at least 1,000 if not beyond – and to think I was nervous at the time to make that call!

Andrew has hosted 135 episodes of the Disciplined Investor Podcast since starting the show.

Recent podcasts include

“Barry Ritholtz on the Most Hated Stock Market Rally Ever!”

Trader Mark and McClellan Indicators” where Andrew interviews Tom McClellan himself as he shares insights on these popular oscillators

“Trading Legend Art Cashin”

“Mike ‘Mish’ Shedlock on ‘How Long Can this Rally Last?'”

“Trading Patterns of the Pros” with guests Toni Turner and Fausto Pugliese

“Monster Stock Ideas with ‘Dr. J’ Jon Najarian

As always, thank you Andrew for your support and friendship, and best wishes as the voting continues!

Corey Rosenbloom, CMT

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A Look at Recent Short Term Peaks in SP500

Nov 16, 2009: 3:22 PM CST

With today’s price action breaking a characteristic behavior of the prior four short-term swing highs in the S&P 500, let’s take a look at those four prior peaks and what the same and what’s different about the current ‘peak.’

S&P 500 Daily:

I’ve highlighted the prior four ‘swing highs’ or short-term peaks (prior to quick and short retracements back to support) in the daily chart.

On each, price was met with a negative momentum divergence and at least one (in August, almost five) doji candlestick at the highs of the upper Bollinger Band before a quick and sudden down day.

The behavior was for price to “chop” around at the highs indiscriminately before a sudden down-day formed.

I mentioned the liklihood for a new high based on reading the ‘behavior’ of the market (and seeing similar “sprung” bear traps) in my November 9th post:

“New SP500 Highs Forecast from Fifth Sprung Bear Trap.”

What’s different about this time?

For starters, price ‘looked like’ it was going to continue its retracement back at least to the rising 20 day EMA at a minimum, but today brought a swift and stellar upward candle (one hour prior to market close) which seemed to thwart the selling pressure or expected choppy environment.

Another difference is that there is perhaps one of the most distinct volume divergences I can remember seeing on a short-term daily chart of the S&P 500 in recent times.

I’ve been discussing that volume divergence in the following posts:

“A Look at Declining Volume on Five Prior Market Tops”

“How Else Can We Interpret Recent Volume Developments but be Bearish?”

With the 50% Fibonacci retracement of the “Bear Market” resting at the 1,121 level, let’s keep a close eye on price to see if buyers still have the strength to overcome this negative volume (and momentum) divergence and push through the long-term Fibonacci retracement zone.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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Measured Move Price Projection Targets for SP500 and Dow

Nov 16, 2009: 12:51 PM CST

With price resembling a “Measured Move” pattern – a type of loosely defined flag pattern – let’s take a look at the full price projection target off the March lows for both the S&P 500 and the Dow Jones Index… which are now mere points away from a full move.

First, the S&P 500:

The “Measured Move” price projection target – using the Fibonacci Projection/Extension tool – comes in near 1,150.

Next, the Dow Jones:

The same price projection target comes in at 10,450 in the Dow Jones Index, roughly 50 points away.

The logic behind this tool is described in my “How do we Find Fibonacci Price Projection Targets” article which explains the use of the tool.

The basic logic is to observe a solid price swing, observe a pullback/retracement against that swing, and then “project” the 100% (or full) price projection of the prior swing starting with the low of the retracement.

This is the logic behind price projections in Bull and Bear Flags, but measured moves are loosely defined patterns that focus on price points instead of a pure pattern.

It’s not to say that price will hit these levels and fall downwards as if they were brick walls in the sky, but it will be interesting to note if price does move beyond the distance of the prior upward impulse from the March lows.

It would strongly suggest that the market was confirmed in an expansion phase if this ‘swing’ from the July lows is greater in price movement than the move off the March lows.

Otherwise, the classical interpretation would have us expect resistance at these levels.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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