Dual Intraday Divergences and the Reversals that Follow Feb 26

Following up from my previous webinar on trading intraday ‘dual’ divergences (TICK and Momentum), I wanted to show the most recent example in the SPY intraday with regards to the negative divergences that resolved in a downward swipe today, which serves as an excellent example of the concept.

This is the SPY 3-min chart (compromise to make the candle bars look cleaner) showing the 3/10 Oscillator and the NYSE TICK.

Starting with yesterday’s lows and moving from the 1:00pm CST new TICK, Price, and Momentum high ($110.20 level), we then see price rallying as expected, but as price forms its expected swing highs, we then observed key divergences in both the price oscillator and TICK (market internal).

Dual divergences often forecast at least a tradeable retracement swing if not a full reversal play (for aggressive traders).

To add something interesting to the mix, price formed its divergences into the key $111.00 (1,110 SP500) ’round number’ resistance area, which added to the odds favoring a downside resolution of the upper resistance area.

Or – to sum – we saw a dual negative divergence form as price tested the underside of the $111.00 resistance level – a great place to take profits (if long) and consider getting short to scalp a move down at least to lower moving averages if not lower – or on any sign of a positive reversal/buy signal.

We got that buy(ish) signal as a doji candle formed on a positive momentum divergence (look closely at the 3/10 oscillator) at the $110.50 area – good for a quick 50 cent gain (or roughly 5 point swing in the @ES futures).

I mentioned in the webinar that single divergences are often good spots to exit profitable trades – as this example shows.

As we ended the chart mid-day, we were seeing another smaller version of a dual divergence, so let’s see how that plays out for the rest of the day – keeping in mind that $111.00 is key resistance that – if broken – should lead to a quick “popped stops” rally.

Otherwise, we’ll watch to see if the second, smaller divergence near resistance leads to another downward move here.

If anything, this serves as a great educational example of this concept.

Don’t let divergences catch you off guard!

Corey Rosenbloom, CMT
Afraid to Trade.com

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