5 And 15 Minutes Of Downside Doom In The DIA

Let’s look inside the price action of the 5 and 15 minute chart of the DIA (DIA) to see the clues preceding the reversal down and also an example of an extremely powerful trend day.

Let’s start with the 15-min structure that I almost highlighted to you last night:

I almost pointed out the “Rounded Reversal” and multi-swing Negative Momentum Divergence on the open blog but decided against it because I believed I’d look foolish doing so as I thought Geithner would reassure Wall Street with his plans and the market would race higher.  Well, that didn’t happen, and the market ‘fell off a cliff’ before he was finished speaking today and never really looked back.  I’ll keep my political thoughts to myself.

From an educational standpoint, take a good look at the large-scale “Rounded Reversal” and how price followed the script off the reversal and breakdown through the 20 and 50 EMAs - complete with a “Cradle” or Confluence EMA resistance trade at 11:00 EST (how convenient!).

Dropping down to the 5-minute structure gives us the entries and risk points to trade the powerful Trend Day Down:

Well, it sure didn’t feel like we’d have a trend day down when the markets opened and filled their opening gap (giving a profitable trade for those nimble among us).

One has to let technicals take a back seat to the major news or announcements - such as a Fed Decision or major policy speech like Geithner gave - but then again, sometimes it’s amazing how accurate they (technicals) can be even in the midst of such rampant volatility.

As Geithner began speaking, we had a bear flag/EMA confluence resistance trade that signaled a short-entry which wound up hitting and exceeding the target literally in 10 minutes.  Price formed a two-bar flag (it really wasn’t enough to signal entry) before plunging back down to new lows and forming a second new momentum low.

At this point you should have suspected that we had a Trend Day on our hands and switched off your indicators (you did that, didn’t you?).  The only indicator that I’ve found to be useful on trend days is the 20 and 50 EMAs (or your preferred moving average combination).  Sell any pullback to the key EMAs.

Seriously - Turn Off Indicators on Trend Days.  You’ll save yourself thousands of dollars.  Do not read any positive divergences into the latter part of the day.  Do not find any buy signals in the stochastic or RSI.  Get short and stay short (or get long and stay long on an up-trend day).  You’ll thank me later.

Continue studying Tuesday’s Trend Day action for additional clues so you can be ahead of the game when the next trend day occurs.

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