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

7 Comments

7 Responses to “SPY Intraday Sept 25 Shows Triangle and Mega Divergence”

  1. fml trader Says:

    hi corey

    i just did a quick search on your site but i cant seem to find what exactly you use as your momentum indicator like in the above chart. My momentum indicator in esignal (MOM) is just a blue line without any fill- in or moving avg. in there.

    also what length do u use? Esignal's mom defaults to 10.

  2. sandew Says:

    Fml,
    Browse on few more charts put up by Corey or go back 2 years of article writing – Corey uses MACD 3,10,16 as Momentum oscillator – and he attributes learning it from Linda B.R.

  3. Corey Rosenbloom, CMT Says:

    Thanks Sandew!

    Exactly – I gave the link for the description in the prior comment. It's an Indicator I learned from Linda Raschke that functions similar to a short-term ROC (rate of change).

  4. Corey Rosenbloom, CMT Says:

    Hi FML,

    It's in the “My Strategies” section:

    http://blog.afraidtotrade.com/how-do-i-create-t

    I use a customized version in TradeStation, though you can replicate it in any program by inputting 3, 10, 16 into the settings field of the standard MACD indicator.

  5. eachtradingday Says:

    interesting comment on the market actions!

    after the day it looks every day so simple. i hope i can learn faster to see this opportunities at the tradingday and not only after.

    thanks for your inside.

    eachtradingday

  6. Bob Says:

    Hi Corey,

  7. Bob Says:

    Hi Corey,

    The adjustments of 3,10,16 to the MACD settings are tweaked to perform in a target time frame and give advanced lead on price swings.

    What is the time frame are you optimizing; 5 minute?