SPY: Another Super Divergence And Rounded Reversal Day

Tuesday’s intraday structure gave us a nice “Rounded Reversal” example that formed another “Super Divergence” like Monday’s session gave us.  That’s why it’s so important to study the day’s structure each day because history repeats - sometimes back to back!  Let’s look at Tuesday’s SPY (SPY) intraday structure for lessons from the day’s events.

(Click for full-size image in complete detail)

We began with a morning gap that fractalized into its own positive momentum divergence that preceded the quick rally that ended just after 9:30 CST.  Notice the triple-swing (”Three Push”) Negative Momentum divergence that marked the high of that period just before the price began to creep slowly then accelerate into the intraday lows.

Remember, I find it generally impossible to identify a first and second wave as they unfold, but advanced traders can pick up on the third wave as it develops and most people can identify a third wave once it is complete, particularly if it is accompanied by new intraday Price, TICK, and momentum lows (this had a relative momentum low) as the 11:00am CST swing did.

Review my “Best Trades to Take” using the fractal wave structure for trading insights and what to expect once you think you’ve spotted a third wave (hint:  wait out the 4th wave retracement and then short the 5th wave as it begins to form to the downside and be vigilant for a divergence and the end of the 5th wave to reverse and get long).

This created the powerful “Super Divergence” as I like to call them which - in my opinion - was the best trade of the day (long), and the precursor to the “Rounded Reversal” we had in price.  Such super divergences often destroy the expectancy of a Trend Day (in this case, to the downside).

This is just another example of how it’s best to track price with the TICK and a momentum oscillator for confirmation/non-confirmation and to be familiar with ‘type of day’ structure.

As always, I detail the day’s structure including the successful and unsuccessful trading opportunities both as educational resources because these patterns and topics I share in “teaching moments” WILL repeat themselves.  Knowing them will give you the confidence to understand and trade these patterns, as well as uncover the type of day structure, as they develop.

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