SPY gaped up on relatively weak +TICK (which coincided with a long-term level of resistance; see daily chart in previous day's post). Price then returned to the previous day's close, where I have before discussed a scalp short entry. Sometimes you get a little, sometimes you get a lot.The 5-min shows a couple of things; (1) price came within pennies of our resistance pivot, while our support pivot held for most of the day. Price did break down from that support (cha-ching!) but ended up returning to close right back at that level. (2) some momentum divergences. I have two vertical dash lines that indicate where the buy divergence would be initiated (based on a tick up in the macd histogram). The first one was on a dragonfly doji candle that barely tested the lower keltner channel and closed right on top of support. The second on a long hammer candle that closed inside the keltner channel after a long wash-out move. I'm not just looking for a tick up in a histogram, I'm looking for this confluence of technicals to show themselves (i.e. candle patterns, price relative to other values, etc.).A couple of observations about today:
- First, on this 60-min chart below we have the "Slow Line" of the macd (also known as the "stability of trend" line) crossing negative. The last time it did that (green up arrow) we had a snap back rally, but the previous three times it did this (3 red down arrows) price corrected lower. (Sorry, I included the wrong 60-min chart, so the one below doesn't contain the arrows where the slow line crosses zero).
- Next, A seminar I once attended lent the idea of observing the total nyse volume in the first half-hour of the day, to get an idea of "higher time frame" participation. In other words, the participation of institutions, and deep-pocket swing/position traders entering the market. Today's first 30-min volume was indeed high, and what followed? Selling!
On the volume chart above I also circled the most recent previously large 30-min bars, and below on the SPY daily chart the vertical dash lines highlight those days with "higher time frame" involvement, and you can see how price reacted.Finally, there's the market profile. Today's profile gives us a "b" shape, which simply highlights the rejection of value at a higher level. Up to this point we have had "fat" profile bodies, building value at higher levels. Now we see value working lower.
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.