Trend Day Down Lessons from June 22 SPY

Jun 22, 2009: 3:41 PM CST

Each day I write a ‘daily summary’ I call my “Idealized Trades” reports (which will be available for subscription by next week) and I wanted to highlight a few lessons from today’s (June 22, 2009) intraday Type III “Trend Day Down” in the SPY 5-min chart.

I mentioned Sunday that odds strongly favored lower prices going forward in my post “Has the S&P 500 topped?” and today’s Trend Day down fell right in line with the daily price weakness I described in terms of different divergences and non-confirmations.

So we began with a large, 1.00% morning gap down in the S&P 500 (and other indexes) which should have clued you in to be expecting a range expansion and possible Trend Day move.

We began with new TICK lows sub 1,000 right off the bat and a negative breadth (bottom panel) reading of -1,700 which trended down all day and hit a final low of -2,372, confirming the new price lows all the way down.

From the morning, it was clear that the best plays were to short pullbacks and retracements to the falling 20 EMA, particularly if confirmed with some sort of reversal candle (like a doji, engulfing, or shooting star) – I marked most of these simple pullback trades with red arrows.

Generally, you would place a stop just above the 20 EMA and as the moving averages narrowed, you would then shift up to use the 50 EMA as a trailing stop.

So as we progressed, we kept seeing New TICK Lows and New Breadth Lows on the day until we got a climax and doji at 1:30 EST.  One could have aggressively played a long here and anticipated a ’rounded reversal’ or failed trend day (meaning to expect that as the low) but in this case, we see yet another example of how playing long or trying to call the ‘bottom’ on a trend day is a loser’s game.

Today was a “Type III” or “True” Trend Day in the sense that we got a large morning opening gap and the market internals confirmed as price made new lows, and finally price closed on the low of the day – a Textbook Example.

Learn from this day and – if your performance wasn’t all it could have been today – use the lessons you learned the next time a Trend Day occurs.  Also, for more background, view my featured post “21 Lessons on Trend Days.”

Please join me as the MoneyShow.com rebroadcasts my presentation “Idealized Trade Set-ups for the Intraday Trader” on July 1st at noon EST – I’ll be there on a free live chat to answer questions through the presentation.  I describe how to identify “Trend Days” and today’s action is a perfect example of my lessons there.

Corey Rosenbloom, CMT
Afraid to Trade.com

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13 Comments

13 Responses to “Trend Day Down Lessons from June 22 SPY”

  1. Tom Says:

    Corey,

    I am a new trader and found your blog a few days before. Great blog! I have been using internals provided by yahoo which show the advances and declines to gauge the market condition. I have no idea how to use TICK and the spread diff. indicator you have used on your chart. Can you pls. describe you how use both of these readings and should both of them be used or one can use only one of the 2? Pardon my ignorance.

    Tom

  2. Anxious Trader Says:

    Corey, do you have any advice on holding positions? I sold SPY short at 91.95 but covered at the first support level around 91.5. I was expecting a considerable correction for over a week, yet i have barely profited from it. Basically, i have a hard time watching the chart, but when i automate trades with stops and limits, my performance is great. Thanks

  3. Corey Rosenbloom, CMT Says:

    Tom,

    Welcome to the trading world!

    Hmm. It's of course too much to describe in a comment, but I'm writing lessons that will soon be available that go into specific detail on these topics.

    I find the TICK to be far more valuable than Breadth (insider's tip).

    Watch to make sure the TICK is confirming the price – if you see new TICK lows and New Price Lows, odds favor a new price low is yet to come.

    If you see a new Price low with a higher low (comparatively) in the TICK, then that's a non-confirmation and expect a possible reversal.

  4. Corey Rosenbloom, CMT Says:

    Your holding position is determined by the expectation of the day (hold all day for trend days, scalp around for range days) and the type of trade you're taking (“sweet spot” and multi-divergence trades play for unlimited targets; flags, simple divergences, chart patterns, retracements play for small, fixed target).

    In my experience, it's better to put in a stop and target simultaneously with entry and then respect those levels instead of trying to 'play' with them (like I tend to do).

    It sound cliche but trust your analysis as you grow in experience.

  5. Tom Says:

    Thanks Corey. Nice tip. I like your style of writing and will be waiting for more educational lessons.

    BTW, Where can I find $TICK in TradeStation?

    Tom

  6. Meron Says:

    Corey,
    I've been following your blog for about a month and it has been really helpful to see how others attack the day. You refer to today as a “type III” trend day. Do you have a post you could direct me to in which you classify the different types of days you anticipate seeing (trend, range, etc.)and their resulting subtypes (types I, II, III, etc.)?

  7. Corey Rosenbloom, CMT Says:

    In TS, type in $TICK to get the NYSE TICK and $TICKQ for NASDAQ.

    I like to insert it as a new symbol underneath my SPY chart so you can overlay them and get better insights. Works in StockCharts.com too.

  8. Corey Rosenbloom, CMT Says:

    Not yet – a Type III day is a 'perfect' day that opens with a large gap, continues lower all day, never closes above the 50 EMA and closes at the low.

    Type II is similar but somehow one of those variables fails.

    Type I is a 'rounded reversal' or trend failure day.

  9. Trade prep: downtrend day or downtrend edition « Mr. Unexpectedly Says:

    […] Not quite in the recap category, but I also highly recommend taking a look at Afraid to Trade’s trend day down lesson for the day. […]

  10. Bhupesh Gupta Says:

    Corey,

    I am following your Blog since last month. I am from India and really liked on your analysis on Us markets as well as on ASian Markets. Can you take Some time out and do a some quick Elliot Wave analysis for National Stock Exchane India, so that it can prove useful to set me up my trade.

    With Beast wishes,
    Bhupesh

  11. Corey Rosenbloom, CMT Says:

    Absolutely! I try to do broad market posts on the weekend and I'm getting so many requests through the week that it's difficult to fit them all in!

    I'll do so very soon – thank you for reading!

  12. Corey Rosenbloom, CMT Says:

    Absolutely! I try to do broad market posts on the weekend and I'm getting so many requests through the week that it's difficult to fit them all in!

    I'll do so very soon – thank you for reading!

  13. 09/22/11: SPY weekly trend down until… | Wall Street Stocks Says:

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