Digging Deeper Into The Recent Rally

The last few trading days have been a boon for buyers, but let’s take a closer look at the 15-min intraday chart of the DIA (DIA) to see what kind of foundation underlays this move.

DIA 15 min:

At first glance, we see a powerful trend-move on the 15-min chart, as price rallied almost without pause from $84.00 to $90.50 in just over three trading sessions.

Notice how the 20 and 50 period EMAs crossed ‘bullishly’ early in December 30th and evolved into the “most bullish orientation possible” by the 31st.  Look closely at #2, which represents the strongest support trade on the chart, which reflects support from the confluence of the 20, 50 and 200 period moving averages.  That was probably the best long-entry on the chart (in terms of risk-reward and trend birth).

the next opportunity to enter long - from a moving average standpoint - came midday on the 31st and then at the end of the day, and also the beginning of January 2nd when price retraced to the rising 20 period EMA.

Pulling the lens back a bit, we see the classic “Three Push” pattern (which actually is a bearish reversal pattern) which corresponds with a complete five-wave upward Elliott Wave Impulse.

The momentum oscillator has registered negative divergences, but just like we practice on trend days, we must throw virtually all indicators - especially oscillators - off the charts, for what matters most in a trend move is the key moving averages for structure and trade entry/risk management.

A final point to which I want to draw your attention is the mysterious “large volume” bars that magically appeared at the end of the trading day, two times to the downside.  If you compare the rest of the day’s volume activity, the average 15-minute bar was less than 1 million shares (in the DIA), though these three outlier bars registered near 3.0 million shares alone.

I don’t mean to be too conspiratorial, but I think you should look a bit closer at those developments, which could be the footprints of “Big Money” potentially exiting into the rally… meaning potential bearishness could be ahead.

Nevertheless, take a look deeper inside the rally for additional clues that can help you determine price structure and probabilities both now and in the future.

Subscribe by RSS Subscribe by Email