Multiple Convergences Mark Intraday Low Lesson

Thursday May 21st offered an excellent opportunity to demonstrate how multiple confluences of non-correlated methods can lead to powerful intraday turning points - in this case, the absolute price low of the day.

Let’s take a look at how we could have known with a high degree of confidence (but not certainty) that $88.25 was the absolute pivot low that preceded a powerful rally in the SPDR ETF (SPY) (and similar structure to the QQQQ and DIA ETFs).

If the whole chart seems jarbled, keep this in mind - I’m only discussing the highlighted ‘doji’ candle at 2:00 CST.  Everything else builds upon that candle as the powerful reversal pivot.

For reference, we’re looking at the 3/10 Oscillator (any momentum oscillator will do) in the middle pane and the NYSE TICK in the lower pane.

As I mentioned in Friday morning’s post, we had a perfect Elliott Wave 5-wave move down into the final lows.  That alone is enough for some Elliotticians to ‘get long’ at the final doji, especially given that we had a fractal (smaller) 5-wave structure complete at the lows.

When you have a smaller 5-wave fractal (from noon until 2:00pm) terminate to complete a larger 5-wave fractal (see earlier post), then you have a powerful “confluence” of terminal 5th waves.  Despite this, I don’t take trades based strictly off Elliott Wave and suggest you don’t as well.  You don’t even need to know Elliott Wave to know that the doji formed at an important level.

Beyond the two 5th wave completions, we had a large and small positive momentum divergence.  Look closely at the new momentum low as the day opened with a gap and compare that reading with the absolute price low in the day at 2:00.  Notice we had a large-scale positive momentum divergence.

Those don’t matter as much on Trend Days (until this point, we did have a trend day) but combine the larger divergence with a smaller positive divergence.  Look closely at the lows at fractal “iii” and terminal fractal “v”.  The 3/10 Oscillator formed a quick positive momentum divergence, hinting that a retracement at worst was coming and a trend reversal was in the cards at best - we got the reversal.

So now we have a short and long-term positive momentum divergence on top of a fractal fifth wave and a larger fifth wave.  That’s powerful enough to initiate a trade for most people.

But wait!  There’s more!

Look closely at the TICK - internal market indicator.  It ALSO made a quick positive TICK divergence on the absolute low of the day.  That adds a lot more weight than a standard momentum divergence, but you’ll often find TICK and Momentum divergences forming simultaneously - I believe TICK divergences are more powerful, however.

And if that wasn’t enough, you had a nice, clean-cut doji candle (which is often associated with price reversals) which was then followed by a type of bullish engulfing candle.

If all this at your fingertips doesn’t give you confidence to enter a long trade - or at least cover your short-sale trade at the lows - I’m not sure what does.  You only see this in real time when you experience it multiple times and utilize non-correlated methods repeatedly, building experience.

To recap:

1. Small Fractal (v) terminal 5th wave (”five of five”)
2. Large terminal 5th Wave
3. Large-scale (all day) Positive Momentum Divergence
4. Small-scale (single swing) Positive Momentum Divergence
5. Positive TICK (Internal) Divergence
6. Doji Reversal Candle
7. Bullish Engulfing Candle
8. Bottom of the Bollinger Band (not discussed above)

This encapsulates how to trade professionally - use your knowledge of various strategies and experience to put the odds as much in your favor as you can by identifying sources of technical confluence, establish where you’re wrong (stop-loss), and then put on the trade and play for an appropriate target - but all that is beyond the scope of this educational post on multiple sources of confirmation.

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Comment by Donaldo

2009-05-24 03:32:05

Hi Carey, I have been followed up your comments on the stocks analysis lately. It’s fantastic. Thinking you could be intraday trader and hope you are. To be a intraday trader has been a target for me. I have tried hard to get the trade right day in and day out, and however, no much progress so far, hope can benefit from sharing and guidance..

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