Intraday Elliott Wave And Flag Lesson In The S&P500

What a day!  Let’s learn a few critical lessons from today’s trading activity, particularly in regards to how Momentum fits into Elliott Wave, how bear flags are confirmed with dojis, and more!

SPY 5-min:

Let’s take it step by step.  We had a negative momentum divergence (not shown) on a retest of the intraday highs of $93.30 at 11:00am.  Many times, intraday highs are formed on momentum divergences as both the high and low show as an example today.

Once price broke down into noon, we formed a new momentum and new price low at $92.60 - this hinted that lower prices were yet to come.

We had a shallow pullback that formed a messy bear flag, but the goal is to short the first pullback after a new price and momentum low which fell shy of testing the 20 EMA (which would have been an ideal entry).

As price broke back beneath $92.60, this was your entry short around 12:30 which would have positioned you in front of the ‘waterfall’ move down into the 1:00pm lows.

If you look to the one-minute chart, or can envision it here on the 5-minute chart, we formed a Three Push pattern (complete with momentum divergence)  into the 1:30pm lows which preceded a nice retracement move up that ended just shy of the 20 EMA on a simple doji for beginners or an evening doji star candle for more advanced traders.

I deem this (the retracement to $92.10) the ‘highest probability’ trade (though not the most profitable trade) of the day, since we had an Elliott Wave structure overlying us, a nice retracement swing up into EMA resistance, and a clean doji formation.  The stop would be placed just above the 20 EMA and the target would be a test of the prior lows at $91.80 or just beyond.

In fact, at 2:00pm, a hammer candle formed (also on a positive divergence) which signaled an excellent exit (of the short-sale).

Price meandered about this level which now looked like a complete 5-Wave formation… which meant the best trade was to go long at the termination of the 5th Wave.

We got a nice pullback that nipped above both the 20 and 50 EMA… but notice the long, upper shadow candles where price failed to overcome this level - signaling an exit for your long trade.  Price then plunged into the close, a testament to the higher trend in force.

Look back to my prior Elliott Wave “cheat sheet” on “The Best Trades to Take using Elliott Wave” and I describe the (in this case) short-sell the 4th wave after you recognize a big possible 3rd wave and then buy long once you feel the 5th wave down has completed - today’s price action gives a great example of this principle.

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