Rounded Reversal, Dual Divergence, and Trendline Breaks SPY Intraday Mar 25

Mar 25, 2010: 2:54 PM CST

Wshew!  The day’s not yet over, and we’ve already had a ‘dual negative divergence,’ Rounded Reversal, trendline fake-out, and a potential ascending triangle forming.

Let’s take a quick look at these set-ups and how they played out, along with where we are right now.


(Click for Full-Size Image)

Without getting too detailed, notice that the intraday swing high was met with a ‘dual’ divergence in both the 3/10 Oscillator and the NYSE TICK – dual divergences don’t happen all that often, and when they do, they signal that an intraday reversal is favored.

This also is a semi-example of the Three-Push Reversal Pattern I have described in prior posts and webinars.

The trigger is often a break under a rising trendline after the dual divergence forms, which occurred at 12:30 CST just shy of the $118.00 SPY level.

True to the sell-signal that this gives us, price plunged for the rest of the session, forming a sort of “Rounded Reversal” pattern to complete (or ‘mirror’) the morning rally.

Although I didn’t label it, a “Cradle” Trade set-up at 1:00 CST as price rallied back into the ‘bearish crossover’ of the 20 and 50 EMA and a doji (reversal candle) formed at the $117.65 level.

Those were just some of the trade set-ups that were possible, and I’ll be describing all of them as usual in tonight’s part-educational, part forecasting “Idealized Trades” Report for subscribers.

Where are we now?

Again, taking the “Pure Price” approach I mentioned in this morning’s update, there are key short-term trendlines to watch:

The “ascending triangle” (which should be interpreted neither as bullish or bearish, but as a consolidation pattern) lower trendline intersects the $117.00 key support level.

A break under this level would trigger another sell signal (updatejust before the close, this occurred) and break of support which could continue the reversal that formed at the $118.00 level.

If this were the case, we would interpret the morning spike as a “Bull Trap” that lured in the bulls and then price fell shortly after.

Otherwise, watch these short-term trendlines (mainly for intraday traders).

Always take the time to learn lessons from each day’s activity so you can continue growing your knowledge.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

6 Comments

6 Responses to “Rounded Reversal, Dual Divergence, and Trendline Breaks SPY Intraday Mar 25”

  1. writersblock Says:

    So, what do you do, if you get caught in a bull trap?

  2. Corey Rosenbloom, CMT Says:

    I'm not sure there's any magic secret to discerning trap or no trap, but on any breakout, be sure to look for confirmation that odds favor prices rising, such as increased participation (volume), momentum, internals (breadth/TICK) and any other signs that odds favor a continuation rather than a false break (which would be hinted with divergences, no pick-up in volume, etc).

    Still, even the best break-outs can fail, so we have to honor our stop-losses and not stubbornly hold on if price were to reverse on us.

  3. writersblock Says:

    Thanks for your reply. I appreciate your work.

  4. rutumbher Says:

    Cory, I check your blog twice a day and I am still lost but learning. I love your analysis and your explainations. Regards to ascending triangles and volume surge, stockcharts.com's tutorial on triangles states that its a bullish indication. What is your thought on their information?
    http://stockcharts.com/school/doku.php?id=chart

  5. JeffreyLin Says:

    those are some ridiculous charts man. ridiculous.

  6. JeffreyLin Says:

    those are some ridiculous charts man. ridiculous.