The Three Push Reversal Pattern in GLD Intraday

Sep 28, 2009: 10:42 PM CST

With Gold (and the Gold ETF of GLD) making a sudden and sharp reversal back to the downside, I thought it would be a good idea to highlight the “Three Push” pattern – one of my favorite patterns – that preceded the reversal and how you might have anticipated and then traded the reversal intraday.  Let’s see it.

GLD certainly showed us a great example of the “Three Push Pattern” (which I detail at the expanding Education section of the website).

This pattern is recognized by three symmetrical “pushes” or swings up in price (notice price peaks) that form on three symmetrical negative momentum divergences – as shown above.

The pattern is confirmed with long, upper shadow ‘doji’ or other type of reversal candlesticks that often ‘poke’ through the outside of the upper Bollinger Band.

The Three Push is a “Revesal” pattern because it highlights the inability of buyers to ‘push’ price to new levels – almost as if they are giving it the best they can and are failing at the highs.

Aggressive traders can short on the dojis (in this case, near $97.70) at the highs and place a stop above the intraday highs of $97.80 – or go even further above the ’round number’ resistance at $98.00.  Either method would have worked.

The target would be a “Trend Reversal” which would allow you to play for a larger, unspecified target that seeks to capture the reversal of a trend as close as possible to the highs.

As price broke beneath the rising 20 period EMA – which served as a “late entry” and confirmation of the reversal – you could have began trailing your stop above the falling 20 EMA.

Price ultimately gave us another entry – what I call the “Cradle Trade” – as price retraced back to the confluence (bearish cross-over) of the 20 and 50 EMAs.

Finally, a nice quick “Bear Flag” formed into the close (I didn’t label it – can you spot it?).

These are the types of set-ups and trading opportunities I describe for you each day in my “Idealized Trades” detailed reports.  These same patterns, structures, and trades repeat across all markets, stocks, and ETFs – only the patterns are cleaner in some markets than others.

Continue studying this chart for additional insights into important patterns and trade set-ups so that you can recognize them in real time when they develop again.

Corey Rosenbloom, CMT
Afraid to Trade.com

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Copper Hangs Precariously at Edge of Cliff

Sep 28, 2009: 12:56 PM CST

Copper Prices, which can be early indicators of economic strength or weakness, are hanging as close to the edge of a cliff as possible and we need to watch the outcome of the current structure for clues ahead.  Let’s see it.

This is one of those “Make or Break” moments in a price chart.

Price has been in a steady and comfortable uptrend since the early 2009 lows.  I say “steady” but in reality, copper prices have more than doubled in the last eight months which is quite impressive.

However, price has formed a type of “Rounded Reversal” or “arc” pattern at the recent highs and has formed perhaps the most interesting negative momentum divergence I ever remember seeing.  That alone is worth studying.

The Bollinger Bands have contracted, which hints that a price expansion move is favored in one direction or the other (in other words, volatility has contracted over the last month to ‘squeeze’ the Bollinger Bands around price).

Bulls need to hold the $270 index level, which reflects the rising 50 day EMA along with the lower Bollinger Band.  If bulls lose ground here – if sellers push prices lower than $270 – we could have a price expansion move to the downside occur which would drop price back to test support at the $220 level.

Bulls look to be holding support for the time being, but continue to watch the $270 level as the “line in the sand” (or more appropriately, the “Line at the Edge of the Cliff”) for the pathway of price ahead.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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Daily SP500 Shows Strong Bounce off Rising 20 EMA

Sep 28, 2009: 12:06 PM CST

Mid-day on Monday, the S&P 500 is up over 1.6% after successfully ‘bouncing’ off the 20 day EMA at 1,045.  Let’s take a look at the current daily S&P 500 to see this bounce and what it might mean.

In an uptrend, the rising 20 period EMA is often expected to be a support zone, as traders enjoy ‘buying pullbacks’ to key moving averages as seen above.

Moving averages also define trends, and the “orientation” of the moving averages (20 EMA above the 50 EMA; both above the 200 SMA) is as bullish as it gets.

As such, price is rallying today as traders continue the “Buy the Dip” mentality in a strong and quite extended rally in the market off the ‘failed’ head and shoulders pattern in July.

There’s been a bit of a volume decline as price pulled back in the recent down-swing from the recent 2009 highs… which is actually bullish.  Low-volume pullbacks are bullish and hint that the retracement is unfolding in an orderly – instead of panic/urgent – fashion, which underscores the health of the uptrend.

As such, 1,045 (rounded to 1,040) is the “Line in the Sand” and I would not be short as long as price is above that level.  A break of 1,040 would target the rising 50 EMA and the ’round number’ of 1,000.

Until then, price seems angling its way to test the recent highs with a good a chance as any to exceed them on the S&P 500 march to 1,100 or 1,124 (the 50% Fibonacci level).

Let’s keep our attention focused here!

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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Current Fibonacci Confluence in the Dollar Index

Sep 27, 2009: 2:05 PM CST

I wanted to show a quick ‘advanced’ chart of the US Dollar Index to note different levels of Fibonacci ‘extension’ confluence at the $77 level which we need to watch.  Let’s take a look:

First, realize that Fibonacci extensions are similar to Retracements (which are far more popular) in that projection off different price swings can lead to confluence zones, as we see above.

For example, the 200% “External Retracement Projection” if the $91 to $84 swing in March (red) is $76.90.

The 161.8% Projection of the same downswing projected from the $88 high gives us $76.84 (dark blue).

The 61.8% Projection (dark red) of the $88 to $79 downswing projected from the $82 high is $76.86.

Finally, the 100% Extension/Projection of the smaller $81 to $78 swing, projected from the $80 high (dark green) is $75.27.

The main idea is that these classic Fibonacci levels using classic methods show the $76.85 area to be a level of confluence Fibonacci support, with the final projection dipping down to the $75.20 level.

In addition to this confluence, a lengthy positive momentum divergence has formed, which adds bullish pressure to the structure.

This may be nothing more than “File this under interesting,” but it may be a critical level and structure to watch in the event of any upward price movement – particularly through the 20 day EMA as shown above.

If bulls have any chance of stemming the downward tide, they have a good chance of doing so now, to force a counter-swing up of short-term or even intermediate term degree.

Failure here would be a devastating blow for dollar bulls and could send the index back down to challenge the $71 lows.

This and other charts are discussed in this week’s 20 page PDF “Intermarket Report” for subscribers, but I wanted to highlight this interesting confluence and development to you for further analysis.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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SPY Intraday Sept 25 Shows Triangle and Mega Divergence

Sep 25, 2009: 5:34 PM CST

I wanted to highlight two features or trades from today’s intraday market action – a Descending Triangle Support Break and a “Mega-Divergence” reversal opportunity.


(Click for full-size image)

The 1-min chart often shows structure better than the 5-min chart, though remember to keep the bigger picture in mind and use the 1-min mainly for confirmation/advanced signals (or to take a step ‘inside’ the signals you’re seeing on the 5-min or higher frame).

The morning gave us a contracting range environment that developed into a “Descending Triangle” – the anticipated trade would be to short the support zone or buy upon a break above the upper trendline.

We got that ‘sell short’ signal at 11:00am CST, though price rushed back inside the triangle for a “throw-back” trade (and tight internal bear flag) which actually gave a slightly better entry if you missed the initial break.

The stop would go above the declining trendline, and you would be playing for about a 55 cent target (the height of the triangle… around 5 points in the @ES).

Ultimately, price ran into the daily S1 (Floor Trader Pivot) area, which then formed a “Major” or “super” momentum divergence, particularly into the fresh lows at 12:30 CST.

The divergence and ‘languishing’ price action should have triggered an ‘exit the short’ trade and ‘flip and reverse’ long to play for a potential Trend Reversal (or at least momentum impulse) thanks to the dual Momentum and – more importantly – TICK divergence.

The long/buy trade was successful until we had yet another “Double Divergence” or “Mega/Super Divergence” of the same structure – that of a negative Momentum and TICK divergence into the $104.90 highs.

Today’s action gives a great lesson of a Descending Triangle and two “Mega-Divergence” plays.

For full analysis of today’s trading opportunities and structure from an educational standpoint, subscribe to my “Idealized Trades” daily service.

This teaches these concepts in greater detail each and every day, which serves as a reference to build your pattern recognition skills and knowledge of these concepts which repeat with regularity – giving you confidence to “do it yourself” with confidence when you see these set-ups occur in real time each day.

Corey Rosenbloom, CMT Continue Reading…

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