An excellent post today over at AfraidtoTrade.com highlighting the Elliott Wave count on the recent move down in the S&P. Even if you're not keen on counting waves and fractals until you go cross-eyed (self-confession here) you can get clued in to the end of an impulse move by looking at a momentum indicator. For as we approach the end of the 5th wave (today's lows) you can start to see momentum dissipate and diverge from price direction.
So, as we started dipping lower this morning you could see momentum lacking the strength to take things too far. Take a look at the 15-min chart with the momentum indicator losing steam (it's even more evident with higher time frames of course, like the 30- & 60-min chart):
As much as I hate to admit it (hate to admit it out of my own inadequacy, not because I think E-W theory is bupkis), keeping track of possible Elliott wave counts can prepare you for a corrective move/wave ahead, and remind you to watch price and momentum for a turn up (in this case in an ABC correction).
A previous post from today included a snapshot of the SPY forming an inverse Head & Shoulders bottom this morning. This reversal was the beginning of our "A"-wave correction and ended around a confluence of our pivot point, 200-MA, AND upper keltner channel. So, not only did we have that confluence of resistance, we also had a "Slingshot" setup taking place on the 30-min chart (can also be seen on the 15-min chart). Notice, momentum registers a higher high while price puts in a lower swing high, leading to a slignshot in price, also giving us the "B" in our ABC corrective wave.Tomorrow should be a telling day in terms of where we go from here and if people start buying this dip, take profits in their positions, or start to short with an eye on 880 in the S&P.
The setups I include on this blog are used in conjunction with the 3/10macd and the criteria I ascribe to it as a way to alert me to an existing condition of price. The key concept to take away from this blog is that I try to anticipate what will happen on the higher time frame by using a faster time frame to trigger the trade setup. I do not trade a "system" I use two indicators to clue me in to price conditions. Please read the Disclaimer located in the sidebar of this site. I can be contacted via email at email@example.com
I am always open to questions, comments, or suggestions on how to improve this blog.