Intraday Foibles

May 8, 2008: 1:45 AM CST

I was quite impressed by the strength of the bears in swiping the US Indexes lower on Wednesday, giving the bulls only a marginal chance for any sort of retracement.  I recommend saving today’s charts for the files under “strange price action” for future review.

Let’s look first at the DIA:

Price made its intraday high just above yesterday’s close, which formed a shooting star (bearish reversal) candle pattern.  After consolidating into the 11:30 time slot, the market broke to the downside and consolidated in a slightly rising formation (actually flat on the SPY) which broke sharply and quickly to the downside.

Bulls only neutralized selling pressure, and did not overcome it, as evidenced by the strange ‘flat-line’ price action into the 2:00pm hour before the bears took full domination of the intraday price action, pushing the indexes to new lows on surging volume before making one final push downward to close near the session lows.

In terms of ideal trades, one could have entered short on the shooting star candle at yesterday’s close at 10:30 and targeted the 200 period moving average.

One could have ‘gotten short’ again when the Bollinger Bands narrowed at 1:00 and entered playing for a breakdown in price with a stop above the key moving averages.

A second such trade could have been entered around 2:00 (actually any time before that once you recognized the price retracement and flat-line price action – akin to a rectangle).

Price breakdowns can give you large targets, and with the swift action, you may have been tempted either to take a small target or try to fade the action when you felt it ‘bottomed’ but momentum often precedes the price and the new momentum (and price) low at 2:30 was a clue that the actual price low was likely yet to come.  Indeed this was the case.

I focused on the rectangle consolidation patterns on the SPY chart below:

It’s unusual to have two rectangle consolidation zones back-to-back, and also unusual to see price form such a clean stair-step pattern without meaningful retracements against the prevailing trend.

File this day for your future reference and study price action to gain greater clues into your own interpretation.

1 Comment

One Response to “Intraday Foibles”

  1. Zlatko Says:

    Maybe it was just luck, but I got in (short) a couple of minutes before that shooting star pattern with a protective stop a couple of ticks above yesterday’s high. Got out at 3 o’clock.

    Yesterday’s action wasn’t so suprising if you look at it from a multi-day perspective. We made a lower high the day before, and failing to break through that high would lead me to believe that we were going to make a lower low. The last low was at about 1397 on the S&P, which was a decent profit potential as opposed to risk.

    I guess what I’m really trying to say is that looking a 10 or 20 intraday timeframe has helped me a lot when daytrading, and I would suggest it to anyone.

    Also, I completely agree about the stair-step pattern on the SPY – it’s like a textbook example of a consolidation rectangle.