Let’s take a quick look at a very interesting pattern that occurred during Thursday’s intraday index trading session and also at some of the opportunities from price structure that set-up during the day.
DIA – Dow Jones ETF (5-minute):
First, the morning began with a large overnight gap of roughly 100 points, putting us in the lower probability that a gap of that nature will be faded, but there was a 61.8% (Fibonacci) retracement of the gap, so even still, there was a partial gap-fade position, the support of which was found at the rising 200 period SMA.
Price then retraced upwards, failing at the confluence of the falling 20 and 50 period EMAs before forming a 45 degree pullback which failed to make new lows on the day and just nipped beneath the 200 period MA.
The pattern I wanted to highlight is the “Measured Move” pattern, or the “A to B equals C to D” relationship which is always an eye-grabber when it happens. It’s a version of a bull flag, but it is not a definitional bull flag, but is best described as a “measured” or “Equal” move, and the pattern sets up with an initial impulse move, followed by a comfortable 45 degree angle retracement, and entry is triggered at the break of the tight upper trend channel, with a target being an exact “measured move” of the first A to B leg.
Even if you miss the entry, you can still gain clues to price direction and structure once you observe the pattern is completing – many times an intermediate or even actual price high (or low) is printed with a measured move-style pattern. The move formed a semi-double top, and then price consolidated about the 20 and 50 period moving averages before forming a tight range (consolidation) and then breaking lower slowly at first before the quick retest (red arrow) which retested the break-out zone and formed a solid short-sale entry.
Price then burst out of consolidation to make a new trend move and new significant lows on the day. Large moves tend to begin out of balance, or consolidation.
So far today (Friday), price has burst to the upside and filled the previous gap, trading as of this writing at $116.40 in a surprise chart move (the day began with a slight gap down). I’m sure we’ll have some interesting patterns to discuss in today’s action as well!