Quick Intraday Market Look

Let’s take a look at the possible trading opportunities that presented themselves in the SPY (S&P 500 ETF) intraday chart today with the interesting price action.

SPY 5-minute chart:

You would have thought the bears would have mauled the stock market indexes when you woke up to read the headline “Inflation jumps the most in 14 years and is twice what was expected!” and yes, there was a gap down, but that gap was quickly faded and the market scarcely looked back from the start.  Why?  The reasons are beyond me, but I try to find potential low-risk opportunities as they present themselves throughout the day.

The first opportunity came with the overnight gap to initiate a possible gap fade trade, which actually worked with minimum interruption until price closed the gap and traded at yesterday’s close.  Instead of inflecting back down in the direction of the gap, price surged to new highs on the day and gave us a large opening range (30 minutes and 60 minutes) on high volume.

Price may have resembled a trend day to you at this point, but remember that trend days often begin with a gap that does not fill and then continues to one extreme throughout the day.  In this case, as price made a new momentum high, you should have been looking to buy the first pullback to the rising 20 period EMA, which occurred before noon and the next swing high actually formed on reduced momentum (notice the negative momentum divergence).

The actual high of the day (as happens many times) was formed on a negative momentum divergence (classic example), after which price tested the rising 50 period EMA (forming a clean entry long via the doji), but ultimately followthrough was minimal and price retested the 50 period EMA before failing, setting up a “Magnet Trade” to test the rising 200 period SMA (this was a classic example of a clean and smooth roll-over of a trend).

Price found support at this level before rallying weakly into the close.

The goal is to find low-risk trades and to play for small targets, rather than to capture every last penny.

Print and annotate your own charts for the stocks and markets you trade for improved pattern and opportunity recognition.