Wild Intraday Action
I’ve never been so happy a weekend has arrived. Before that weekend starts, let’s take a look at the 1,000 point intraday swing in the Dow and other insights from the intraday trading for October 10, 2008.
$INDU 5-minute chart:
Folks, a 1,019 point Dow intraday range is nothing to sneeze at – it is absolutely remarkable and worth further attention.
The global markets fell roughly 10% each, and the US Equity Futures were off around 5% with the equity markets opening roughly in line with the futures, selling off, then sharply rallying… only to drift slowly lower all day… until the final hour where miracles happened (or curses for the short-sellers) into the close.
Are technicals valid in this environment? They provide and identify structure and probabilities and allow snap-analysis of risk-management points as well as possible price targets. It’s just that this environment is driven far more by emotion and news than anything, so while technicals can be helpful, they are not, and will never be absolute or infallible.
Nevertheless, price did respect the falling 20 period EMA and made a series of ‘clean’ lower lows and lower highs all day until the positive momentum divergence ‘caught up’ with price and then the index violated the 50 period EMA, shifting to a bullish breakout from consolidation and resistance. That sharp 8-bar rally up underscores why it’s difficult for both longs AND shorts – if you were short and didn’t take a stop-loss, you could have endured a sudden 800 Dow Point rally against you, potentially destroying a small (overleveraged) account.
Price stopped at 8900 – the 200 period SMA before falling back into the close – how wonderful (for the bulls) would it have been to have achieved a positive close this Friday? It wasn’t meant to be (in the Dow).
With 8 consecutive down-days in the Dow, where does that leave us on the Daily chart?
$INDU Daily Chart:
Price made a new low well beyond where most people expected – it was absolutely brutal. People tried to catch bottoms along the way but it also wasn’t meant to be.
Price has now formed a ‘doji’ which could be a reversal signal but you don’t need to bet the farm on anything in this environment – stay small and heavily risk-controlled.
Print and annotate multiple stock charts and analyze them this weekend – it will be a helpful exercise that will add some perspective, as well as enhance your pattern recognition. Plus, this kind of persistent down-moves aren’t likely to occur often (so we hope) so it could be interesting to observe them while the exist.
Hi,
I have been following your blog for quite some time and have learned quite a bit from it. I have also started writing a blog. I would appreciate if you can take a look at it. I would love to have a link to it on your blog or any suggestions you can give. Thanks in advance.
http://thinkingtrades.blogspot.com/
I would read this post more thoroughly but at the moment I am too exhausted, physically and emotionally. Alas, I’ll have to read it more thoroughly tomorrow.
By the way; how about these cycles!? S&P 500 recorded it’s lowest low of the previous bear market on
October 10, 2002 (768.67).
The height of the bull market was recorded on
October 11, 2007 (1576.09).
And here we are October 10, 2008, talk about consistency!
Have a good weekend Corey!
-todd
p.s.
I’d be curious to know your take on Gold. Why the lack of performance? With all of this bearish volatility it just can’t seem to stay about $900. I’d like to know your input.
-todd
ineresting that so much people want to see the low. Be carful.
ineresting that so much people want to see the low. Be carful.
Corey,
If you were watching the markets in real-time on Friday, where was your confirmation point to go long. I hesitated way too long to buy the market as I start telling myself; “well we could get resistance from this Moving Average on this longer time frame.”
A break of which Moving Average (slow or faster) would confirm for you? Would you then wait for a close of the bar or just jump in?
I suppose if you waited for a break of the slower moving average one might have been hesitant to “chase” price.
I find I hesitate way too much and believe I over-think some of these matters. Thanks Corey.
-todd
Corey:
Those that are trading in this type of market must be using a new set of rules for risk due to the volatile conditions. In the ES for example, I see 2 to 3 pts of slippage when clicking market orders and 6-10 pts of noise as markets whip back and forth. What kind of trading parameters might you use until things normalize? 8 pt stops with 15 pt targets? Quickly go to Break Even stop with a 5 pt move in your direction and if stopped try again? Obviously there is more risk involved here but there is also opportunities to log a 20 to 30 pt gain in 15 mins! I am interested in your thoughts on risk reward in this trading environment. Some of us can’t afford to say I am “afraid to trade”, we must develop new techniques. What do you think?
Thanks….Carl
its quite amuzing to see so many people are now trading futures..
it’s like the taxi drivers who owned yahoo stock options during the tech bubble
technical anaysis will be changed forever as known information will be priced in
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