DIA: Absolutely Fascinating Intraday Affairs

Today (Thursday) provided a plethora of material to discuss in terms of the “idealized intraday trading” set-ups, so without further delay, let’s look at these on the DIA (DIA) 5-min intraday chart:

The day started off normally (no gap), given that Apple’s (NASDAQ:AAPL) announcement that Steve Jobs was taking a medical leave of absence brought expectations of a down-open.  Ultimately we got that initial swing down, but surprisingly it didn’t come in the form of a gap (the futures were actually up prior to the open).

So the first push was to new lows which also formed a new momentum low which hinted that lower prices were yet to come.  We got a quick two-bar retracement that set-up a bear flag that got its target and took us yet again to new lows on the day on another new momentum low that again hinted that the absolute price low was yet to come.

We got a decent retracement into the falling 20 EMA and formed two dojis in a row which were absolutely ideal ’short-sell’ entries with low risk.  The stop was just above the 20 EMA and the minimum target was a test of the 10:30am lows - that’s what I call the “Impulse Sell” trade.  It met and exceeded its target as we made new lows again on the day… this time with a significant positive momentum divergence.

If you look closely, you’ll see that the downswing from 10:00am to 10:30, the retracement from 10:30 to 11:30, and the down-move from 11:30 to 12:30 formed an ideal “A to B equals C to D” Measured-Move pattern.

Once we made new price lows on a positive momentum divergence, that should have been a clue that at a minimum, we’re headed back to test the 20 EMA and perhaps the 50 EMA and also that the 12:30 lows *might* just be the lows of the day (more times than not, intraday lows are formed on positive swing divergences just like this one).

Of course, there’s no way you could have guessed how strong the retracement move up (which converted into an impulse move up) could have been, but your #1 clue that we had shifted from a bearish posture to a bullish one was when price shattered the 20 and 50 EMAs with no resistance and then pulled back to the “Confluence Support” Zone that formed just before the EMAs crossed ‘bullishly.’  Price surged to new intraday highs after this pattern set-up.

We made a new price and momentum high at 2:00pm, hinting that the actual price high was yet to come and it did so also on a new momentum high at 3:00.  Price formed a deeper than expected counter-swing back down just beneath EMA support to close strongly on the day, calling the recent daily downswing into question by forming a bullish doji candle on a (likely) successful test of the daily Bollinger Band.

Continue to study the day’s action for further insights - there were many excellent and informative patterns that arranged themselves during the day that might warrent your further attention.

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