Who Saw That Coming?!

The market is in yet another phase of shock and awe, surprising traders with a large price volatility move up within the last hour of trading today.

According to Reuters, The markets took the news of the recent credit bailout as a report of a “bailout on No. 2 bond insurer Ambac allowed investors to shake off fears of deeper problems in credit markets and a U.S. recession.”

Let’s look at that intraday action and then build up our perspective to the daily index charts:

S&P 500 5-minute:

I don’t pretend to imply that the technicals (price patterns and indicators) could have forecast the end of day rally – they couldn’t. Price moves through complex interactions of news, emotion, technicals (patterns/indicators), sentiment, and so much more. The news traders took the lead at the end of the day.

I must add that a positive momentum divergence was developing virtually all day as price made new lows.

Let’s see the move on the Dow Jones Index:

Please pardon the melodramatic ‘torn edge’ effect that symbolizes the ‘torn accounts’ of those who were short the market today.

Price rallied from an intraday low of 12,160 to an intraday high just shy of 12,400, meaning price rallied almost 250 points in 30 minutes. Wow.

I typically trade most aggressively in the morning, so my sympathy goes to you if you were short going into this unexpected large volatility price move against the prevailing trend. I’m sure the action was exacerbated by shorts covering en masse.

Now, let’s turn very quickly to the daily Dow:

I’ve read for the thousandth time today regarding the symmetrical triangle forming on the major US Indexes. Some of the folks on TV are even dusting off their technical analysis textbooks and addressing this recent visible action.

Folks, if everyone sees the same pattern, then odds favor the pattern will fail due to the inherent nature of liquidity in the market. Think from a contrarian’s perspective. If the triangle breaks one way, doubt that direction until confirmed by other indicators. Expect a fade.

Let’s see what happens!