The Double Dip Trend Day Up on Wednesday

Jan 28, 2009: 8:55 PM CST

We expected a price movement out of the recent coil (consolidation) and we got it today in spades.  The break was to the upside which surprised many bears, but let’s look inside the DIA’s 5-minute chart to gather where we might have entered some high probability trades and learn from the day’s structure.

DIA 5-min Trend Day:

DIA 5 min January 28

The day started with a large-scale (greater than $1.00) upside gap that was began and was discussed last night in the post-market hours.  Statistics show that it’s not best to try and fade a gap greater than $1.00 in the DIA (100 Dow Points).  Price made a partial move into the gap but fell short of testing the rising 20 EMA.

Remember that in gaps, we generally have to turn off our classic indicators until they ‘shake out’ the gap price from their periods – they really become useless until you do so.  Price made a new momentum high, but gaps themselves serve as momentum impulses.

Price carried back up to find resistance and then consolidated as it hugged the rising 20 EMA as traders waited patiently for the announcement of any Fed policy.  Today’s intraday action represents an idealized structure of what to expect on Fed Days.

Price has an initial morning gap, consolidates through the afternoon, then makes three sharp swings on greatly increased volume after the decision is given.

Price formed a major Bollinger Band Squeeze into 1:00pm (which meant place bracket entry orders outside this range) and then burst into a quick 5-wave push to new highs on a negative momentum divergence.  Alternately, one could call this the “Three Push” pattern which is also a reversal-style pattern.

We had a downswing that perhaps ‘should’ have found resistance at the confluence of the 20 and 50 EMA, but alas it did not and the ‘double dip’ beneath the 50 likely stole away some well-placed stop-losses.

It’s often a battle over where to place your stops – if they’re too tight, you’ll almost always be stopped out unnecessarily but if they’re too far away, though you’ll be stopped out less, you’ll also suffer larger losses when they occur.

Today’s action was a testament to the “Further Stops” crowd, as price breached these averages then made a run to try to test new highs which was cut short by the Closing Bell.

Let’s see if Bulls can consolidate these gains and hold the breakout they managed to achieve today.

Corey Rosenbloom
Afraid to Trade.com

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7 Comments

7 Responses to “The Double Dip Trend Day Up on Wednesday”

  1. Dominick Says:

    Hello Corey,
    I take it that the $1.00 gap rule is DIA specific. What about other stocks? Is there a general rule? Or is each stock a case by case basis, the gap rule for which would be determined by the characteristics/stats for each individual stock. Thanks, great post, very educational as always.

  2. Corey Rosenbloom Says:

    Thanks Dominick,

    I focus my research on the DIA and trade the @YM so that’s where my expertise comes – I rarely trade individual stocks anymore.

    It would probably be better to do the research on a percentage basis but I’ve always focused on dollar-based differentials.

    I would say it would be unique to each stock, which is not hard to test once you set up the parameters, particularly in TradeStation.

  3. Don Da Mon Says:

    Looks like on the S&P that we are turning at about 874 for a measured move to retest the low. Yesterday ended its bear flag that reached its retracement. What do you think?

  4. Corey Rosenbloom Says:

    Could very well be the case with this morning’s down move.

    My heart just goes out for the bulls – they can’t seem to catch a break.

  5. clint Says:

    You can’t really tell it just like that. That you are hoping that it would take a break. Solutions are needed for that to happen and what I mean is a real solution to that problem. Focus on one error at a time, so that we can see an improvement and changes.

  6. clint Says:

    Its a great news i ever heard hoping it that it will continue.Price movement has a very big impact on it. This might pushes through till the end of the week.Hoping that it will happened through-out the week.

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