DIA: The Most Perfect Trend Day Ever

Ok, maybe not “ever,” but today’s (Friday) intraday DIA price action comes as close to an “idealized” or perfect trend day example as you can find.  Without further delay, let’s see the stable price action that made up the day.

DIA 5-min January 2, 2009:

The day began as many classic trend days do - with an overnight gap that (technically) did not fill.  An un-filled gap is your first clue that a trend day may be upon us.

An initial retracement occurred to the 50 EMA which was quickly reversed at support before rocketing to new intraday highs at 11:00am.  Price then ‘flatlined” for the next hour, experiencing a correction “by time” to the rising 20 EMA, finding support, forming a hammer, and rallying again sharply off EMA support.

Price then retraced one more time back to the rising 20 EMA before rising higher again.  Like a broken record, the market retraced one final time to find support at 3:00pm to rally into the close… which was unfortunately marred by a large down-bar into $90.20… which means the Dow is now officially above 9,000.

I reiterate - on a suspected Trend Day, eliminate all indicators except moving averages.  Oscillators (in an up-day) will always be flashing “sell” due to ‘overbought’ conditions and even the 3/10 Oscillator (shown above) will flash multiple false negative momentum divergences that must be ignored.

I have found consistently that the 20 period EMA in conjunction with the 50 EMA provides the best combination of moving average analysis for trend days, in terms of support, risk-management, and additional trade entries (on retracements to these averages).

Today’s price action may have taken many by surprise, but it is what it is and - perhaps in part - was so strong due to the overt bearishness out there.  Perhaps a good deal of the move up today was on the backs of bears being stopped out.  We’ll soon know whether this move continues, showing signs of additional strength, or reverses which will prove only to be an insidious bull trap.

Keep watching this closely!

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