We want to know if we made any mistakes and thus need to correct them, or whether the market gave a valid trade signal yet real-time developments overruled the original trade, resulting in a loss.

Sometimes when the market ‘busts’ or invalidates a high probability set-up, particularly after a strong gap, it can have short-term forecasting insights for the remainder of the trading day.

A failed trade can provide the necessary clues to reveal a shift in the supply/demand relationship either that we missed in real-time, or else dramatically shifted during an otherwise valid trade.

Let’s take a look at such a situation from the intraday SP500 action (using the SPY ETF as a proxy yet the lesson is just as applicable to other markets and futures contracts) on May 23, 2013.

Here’s the logic behind the initial retracement trade set-up after a strong downside opening gap:

With a large downside gap, we would be looking for any signs of additional continuation for a possible Trend Day development, which would put our focus on potential retracement or intraday “flag” trades that may develop.

The chart above shows the 5-min chart (left) along with more detail on the 1-min SPY intraday chart.

The main idea of the 5-min chart is that price completed a large downside opening gap and has retraced into a dual confluence area of the falling 20 EMA along with the simple “Round Number” of $165 (roughly 1,650 in the SP500 index).

This alone would be a simple trade set-up via flag or retracement logic, but we also see a corresponding negative momentum divergence in the 3/10 MACD SMA momentum oscillator.

Clean retracement set-ups often develop with a market retraces to a potential resistance or inflection price while the lower timeframe chart reveals a negative divergence (be it in market internals, volume, or momentum).

An aggressive trade entry develops INTO the known resistance area (as close to $165 as possible) while a conservative entry requires a trigger, usually in the form of a breakdown under a rising trendline, 5-minute reversal candle low, or else the break of a horizontal support line (as is the case here into $164.80).

Let’s take a closer look at this set-up in terms of entry, targeting, and of course stop-loss placement:

When planning any trade (this is true for Swing Traders, not just intraday traders), it’s helpful to create a pathway for expected price movement along with an alternate pathway that you believe price should not travel (for example, above a resistance level).

The 1-min SPY chart above shows the $165 level and the 20 EMA (from the 5-min chart) which form the basis for the expected resistance area that price “should not cross.”

Traders in general will locate stop-losses at various prices above a known resistance level, though many will locate stops near the same level which results in a cluster or “pocket” of resting stop-loss (buy-to-cover) orders.

Thus, we have a “pocket” of stop-losses above this resistance area and an “unexpected” pathway for price to travel if instead buyers overpower sellers who expect the market to trade lower for the rest of the session (for reasons other than the charts above)

Our expected or likely pathway is highlighted in green which represents a stable, steady movement lower at least toward the session low into $164 (though bears/sellers may hope it trades even lower that that for additional short-selling opportunities under $164).

For this example, we’ll use the following parameters:

• Trade Trigger:  Into $165 (aggressive) or under a trendline ($164.80)
• Stop-Loss:  Placed depending on risk tolerance above $165 (stops will cluster above this level)
• Initial Target:  A sell-off at least toward $164 which is a round number and the session low

The trade has a superior reward to risk relationship (greater than 3:1) and – per our assumptions at least – greater odds of trading down from resistance (with divergences) toward the low as compared with breaking immediately above the ‘cluster’ resistance at $165.

We’ll be on guard for any surprise price events and monitor the movement toward – or away from – our expected target.

The chart below shows two “surprise” events and the eventual outcome of the trade:

While price initially traded lower toward our simple target – moving from $165 to a low of $164.40 – two surprise bullish events occurred which “busted” or broke through the price pathway we created.

Two waves of buying pressure sent price rallying 40 cents each at 9:50 and then 10:05am CST.  That wasn’t part of the plan!

Depending on how they managed the trade (closing a profitable position at the first sign of danger or else bravely holding on through surprise developments that do not trigger the established stop-loss), traders who took the same set-up experienced different outcomes.

Those who adapted to the unexpected bullish events may have exited with a small profit while those who did not interpret these signals – or else held the position either until the pre-established stop or target was hit – resulted in a stop-loss from an otherwise high probability-perceived retracement set-up.

Note the sudden upside acceleration as price entered the “Pocket” of stop-losses, which created a short-squeeze event that helped propel prices higher (as short-sellers joined with the buyers to boost prices in a quick impulse of rapid buying pressure).

This itself – the unexpected entry into a “pocket” of stop-losses above a resistance level – is an aggressive trading opportunity for those who are comfortable trading “failure outcomes” or breakout events driven by a ’squeeze.’

The main idea of this lesson is not so much in trade management tactics, but in the MESSAGE sent by a perceived high-probability or high-confluence (many indicators aligning to suggest a certain outcome) trade set-up failed.

At the core, it often reveals a “stronger than expected” shift in the supply/demand (bear/bull) relationship that either existed prior to our trade (and wasn’t visible perhaps beforehand) or else shifted dramatically DURING a trade that otherwise would have met its objective.

In simplest terms, when a high probability or high confluence intraday trade blatantly fails, it reveals that we should consider adapting to the new supply/demand environment and stop trying to trade in the original direction (in this case, to the downside).

This can prevent us from losing money on future failed trades that go against the new supply/demand balance (or price trend).

As I hinted earlier, a failed trade that results from a sudden shift or (revelation of a shift) can be a sign that the market is “tipping its hand” that the remainder of the session will likely be bullish (in this case).

While sellers had plenty of indicators in their favor, they were unable to overcome the buyers who are stepping in for many reasons other than the charts (or our perceived high-probability trade set-up).

Intraday Trend Reversals can quickly occur when short-term/intraday sellers become buyers (either buying-to-cover suddenly losing positions or flipping over to the bullish side themselves after a failed trade) and join with higher timeframe influences entering a market.

The chart below shows the Bearish Bias (red) in the morning which suddenly shifted to a Bullish (or at a minimum, Neutral) Bias BECAUSE OF the failed high-probability pro-trend (intraday) retracement set-up:

We see the entire session in hindsight but try to visualize it as it unfolded and the collective thoughts of traders as the session progressed.

The breakthrough above $165 – invalidating a retracment set-up and breaking known resistance (thus triggering a quick short squeeze) – immediately shifted the bias from the bearish-favored to the bullish-favored, so long as price remained above this barrier level.

It led to additional breakout and retracement trades as seen above as potential future (at least from the 10:15am CST breakout) opportunities.

At a minimum, we should be open to the message of price (the market) when it reveals an otherwise valid set-up or trade logic has officially failed.

It suggests that the supply/demand relationship (imbalance) that resulted from the failed trade may continue throughout the remainder of the session, and we thus need to adapt as additional real-time information from price develops.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

We’ll start with a bigger picture view of the SP500 and NASDAQ:

To keep this update brief, I’ll simply focus on the price interaction (pullback) to the rising 20 day Exponential Moving Average (EMA) which trades at 1,633.

We’ll see from an intraday chart that this level intersects another important intraday trendline, but for now our focus is on whether price bounces up or instead breaks under the reference support level to continue toward the lower target.

In a rising trend that is showing visual separation between the 20 and 50 day EMAs (also called “moving average orientation”), we look for the rising 20 day EMA to be a target for any retracement swing.

The rising 50d EMA intersects an easy to remember ’round number’ reference level target of 1,600.

In the event that price begins trading under the 20d EMA reference level, we then look for intraday play and swing (price) continuation down to the expected support of the rising 50d EMA (reference mid-April along with mid-February 2013).  Note the highlighted red/green band on the price chart to reflect this “If/Then” logic.

The situation is the same in the NASDAQ (and Dow Jones for that matter):

The two overlapping reference levels for the NASDAQ will be the ’round number’ 3,400 level and the rising 20d EMA currently at 3,416.  Note the intraday index ‘gap’ low of 3,422.

The price action intraday has supported pro-trend continuity (bounce), yet again any breakdown under 3,400 would open an expected opportunity to trade back to the prior gap and rising 50d EMA overlap into 3,350.

Let’s step inside the market and take a look at the 30-min “structure” of the SP500 and NASDAQ:

When referring to Market Structure, we describe the series of price highs and lows as they progress to ‘build’ a trend.  Trends are expected to continue until clear evidence – such as a reversal of structure – proves they have reversed.

We see the trend structure continuing a lengthy intraday uptrend environment through all of 2013 so far, with the movement from April 17th to the present comprising a single upswing in price.

The key level to watch at the moment is the price interaction with the rising upper trendline as drawn at the 1,635/1,640 level which was the intraday spike low this morning.

Again, align this with the Daily chart 20 day EMA into 1,633.

We turn now to the NASDAQ intraday structure with a Fibonacci Retracement Grid:

The structure (progression of swing highs and lows) remains similar to the SP500 yet the April volatility created the first lower swing low into April 18.

A solitary swing low does not invalidate or reverse a trend in motion; instead, it takes a lower high, lower low, then a breakdown under the new lower low to reverse a trend.

Nevertheless, we can see the negative momentum divergences ‘undercutting’ or failing to confirm the new price highs achieved earlier in the week.

The 23.6% ‘lesser known’ Fibonacci Retracement level exists into 3,432 which is a level that also can be a short term reference for intraday traders – the index trades above this level currently.

Going forward, we’ll be watching these levels closely, specifically the 20d EMAs, and assessing whether the next swing in price can muster the strength (buyers step in to ‘buy the dip’ again) to take the indexes back to and then above their all time highs (continuing the trend) or else whether they can only rally the indexes to a lower high which would be a clear early warning sign of potential short-term trend reversal.

Again, we’ll focus on the daily chart reference levels with respect to the strength of the current ‘up-swing’ and the structure it creates on the chart.

For prior reference posts on Market Structure, take a look at the following:

April 17 Triple Index Check-up on Sudden Shift in Market Structure

April 10 “Interesting Breakout Structure” Update

Planning Market Structure to Start April

March 6 Structure and Triangle Breakout Update (Dow and SP500)

I’ll continue to update changes in structure on the open blog but also feel free to follow along with daily commentary and detailed analysis each evening by joining our membership services for daily or weekly commentary, education, and timely analysis.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

Let’s take a look at these steps and the key levels to watch to judge the odds for a true reversal, or yet another ‘trap’ and failed reversal against a prevailing price downtrend.

We’ll start with the Daily Chart:

Starting with the April two-day collapse (breakdown under the key $1,525 level that resulted in an avalanche of selling pressure), price completed a snap-back rally (dead cat bounce/bear flag) successfully to the falling 20 day EMA into the $1,475 level (also the 50% Fibonacci Retracement).

This was a key “make or break” level that allowed for “IF/THEN” scenario planning:

A breakthrough higher than $1,475 ’should’ continue up to $1,500 then if above $1,500, on to at least $1,600 for a reversal.

However, a ‘likely’ continuation or second sell-off impulse would take price lower to its initial downside target for a retest of the swing low from April near the $1,325 to $1,350 area (fulfilling a ‘dead cat bounce’).

The bearish scenario unfolded which leaves us where we are currently for the present short-term “Make or Break” scenario/trade planning.

In simplest terms, this level forms the foundation for a potential short-term reversal, yet if a reversal fails to gather strength at this key level, then we’ll need to turn to the higher frame chart to project additional downside targets for gold.

With the strength of today’s Bullish Engulfing Candle at this key visual inflection price level, it’s up to the buyers to keep this potential reversal going.

We turn now to the intrday chart of Gold Futures (@GC) for additional information, including Fibonacci short-term levels for intraday targets:

Let’s start first with the Fibonacci Retracement grid as drawn.

Today’s power-reversal intraday session immediately took price to the first target – the 38.2% Retracement which aligns with the “Round Number” reference price of $1,400.

Quite simply we’ll judge the probability of a reversal higher – and bullish trade set-ups above this level – depending on the follow-through with respect to the $1,400 key pivot.

A firm breakthrough above $1,400 would continue to tilt the odds in favor of bullish price continuation, stretching initially toward the $1,430 area (61.8% retracement) and then “IF” above $1,430, “THEN” on for an eventual target back to the $1,470 and $1,475 prior high.

While we have clear upside bullish levels on which to focus (particularly for intraday traders), do watch immediate price behavior into the $1,400 target.

A failure here would dampen the probabilities of reversal, particularly if price breaks under the $1,380 key short-term pivot support.

For game-planning, we’ll look for bullish breakout/retracement continuation set-ups above $1,400 (and $1,430); we’ll be neutral/cautious between the intraday reference levels of $1,380 and $1,400; and will look for a bearish “failed trend reversal” movement if firmly under $1,380.

By the way, the 20-min (and other intraday charts) show a persistent positive momentum divergence along with a visual momentum burst or “kick-off” signal – divergences and kick-off impulse signals tend to forecast potential price reversals.

It’s up to us, however, to trade and manage risk depending if the classical odds result in a successful reversal, or else whether a failure outcome occurs (which would actually be a downtrend continuation situation).

We see a very similar structure for those who prefer using the GLD Exchange Traded Fund:

Again we see the downtrend (lower lows/lower highs with bearish moving average orientation) in motion, yet the downtrend is “in danger” of reversing based on the higher frame support target, bullish engulfing candle (daily chart), positive momentum divergences, and momentum burst/kick-off signal.

To be clear, these chart-based signals do not guarantee a reversal (if only it were that easy!),  but it does alter the parameters for short-term traders with respect to key levels as mentioned for real-time assessment (and trade targeting).

I’ll be discussing this set-up along with pre-market and broader opportunities for stocks, ETfs, oil, and currencies during my Morning Market Briefing each Tuesday morning at 9:00am EST/8:00am CST with TradeStation.  It’s free and anyone can join us so be sure to attend if you are available!

Follow along each evening by joining our membership services for daily or weekly commentary, education, and timely analysis beyond the daily blog commentaries.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available.

At the moment, Amazon (AMZN) shares are trading down from a critical inflection point that will set the stage for short-term trading strategies for the stock.

Let’s take a quick look at the current inflection zone and note what the expectations will be for channel or pattern continuation or else a breakout above the known resistance/inflection level.

Keep in mind our goal here is not to predict the future, but to note price behavior (supply/demand) at a key inflection point.  Trades develop naturally from the higher timeframe structure as we watch the lower frame evolve in real-time.

For now, the simple key inflection point for Amazon is the $270 per share level as it reflects the upper bound (target) of a falling range (declining parallel trendline) pattern.

A breakthrough ABOVE this inflection point that carries above the prior “spike” or Bull Trap high into $275 would be expected to continue through “Open Air” back to the prior established high into $285 per share.

That’s the Bullish “IF/THEN” Scenario Plan.  The Bearish plan calls for a simple continuation of the short-term pattern which would suggest a bearish outcome all the way back to the $245 per share level (the lower boundary target).

We’ll be following along in real-time comparing evidence as to whether the bearish $245 target or $285 upside breakout target is favored.

For now, odds seem to argue in favor of the downside target given the negative divergences and the two doji reversal candles into the critical $270 target.

When in doubt, or to get additional information from a Higher Timeframe Inflection level, drop to intraday charts:

The Hourly/intraday chart shows the recent rally up to the $270 target in May which has been ‘undercut’ by negative volume and momentum divergences along the way (ever since the volume and momentum peak on May 3).

Again, the chart evidence points for simple odds – at least from an intersection of divergences into resistance – as favoring a bearish outcome.

However, as traders, we are always aware to alternate possibilities if only for risk-management strategies (placing stops above an expected resistance zone).  It would be far too easy if everything worked exactly as expected!

Savvy or aggressive traders can also set up a game plan to buy shares on a breakthrough above a resistance level that odds (charts) suggested would hold firm.

The strategy is to trade an unexpected breakout and the expected “Short-Squeeze” or popped stops impulse that would likely occur on a surprise breakout.

Thus, we’ll plan for a bullish breakout on a firm breakthrough above $270, allowing the one-day possibility of a vicious Bull Trap (a bull trap occurred on the April 25th high which preceded a ‘collapse’ in price the next session).

Otherwise, we’ll continue monitoring price should it continue trading lower as the divergences and resistance (Daily Chart Declining Trendline) pattern suggests.

If a full downside target is achieved, it will likely do so with a few chances for intraday traders to sell-short intraday bear flag or breakdown trades that occur in real-time as price moves toward the target.

This is an example of scenario planning on the higher timeframe which guides trading decisions on the lower frame.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available.

Follow along each evening by joining our membership services for daily or weekly commentary, education, and timely analysis beyond the daily blog commentaries.

Let’s look at the charts stretching back to late 2012 to see patterns and short-term insights into cross-market money flow:

As a proxy for “Money Flow,” we’re viewing the daily closes (line chart) of three “Risk On” Markets (Stocks, Oil, and Gold) along with two traditionally “Risk Off” Markets (10-Year Notes and the US Dollar Index).

Starting with November to present, we see a consistent trend INTO the Stock Market and OUT OF Gold.

While those are the crystal clear trends, Oil rallied with stocks through December but has since been stagnant or declining from its early 2013 peak.

Likewise, “Risk-Off” Markets Treasuries and the Dollar saw a decline into the early 2013 lows ahead of a March rally higher in the context of a short-term shift to protection/defensiveness in Oil and Gold (Commodities) but NOT in US Stocks.

In May, in conjunction with a continuation breakthrough higher (above 1,600) in the SP500, we see a mixed-money flow signal with a logical (expected) corresponding decline in Treasury prices but a sharp rally up in the US Dollar Index.

If we eliminate the US Dollar Index from the calculus, we see money flowing OUT OF Treasuries, Oil, and especially gold and continually into US equities, almost without any pause whatsoever.

With the broader picture, a continued breakout and rally in stocks is completely in line with persistent money flow trends since November 2012.

Here’s a quick look at the intraday or short-term flows (trends) (SP500 and Crude Oil):

Gold and the US Dollar Index:

For comparison, we’ll use the afternoon of April 17 as a vertical comparison of movement before and after this date (the bottom of a retracement swing in the SP500).

Note how the other three markets ‘bottomed’ the morning of the 17th as opposed to the afternoon reversal in stocks.

Even the US Dollar Index bottomed a day in advance of the stock market’s low.

All markets including gold saw a strong bounce/rally up through late April (though the Dollar weakened to a new low on May 1).

Short-term money flow continues to be bullish for Stocks, though the most recent swing has been to the downside in oil and gold.

Take a few extra moments to compare swing structure in terms of the red and green arrows across these four markets/indexes.

While these four ‘big markets’ give us a quick glimpse of broader money flow, you may also want to study related commodities, overseas equity markets, and the Treasury indexes.

It’s often helpful to view the intermarket landscape in terms of Stocks, Bonds/Treasuries, Commodities, and Currencies and visualize money flow between these markets in terms of Risk-On/Risk-Off movement for trade and position planning.

This is the type of logic/planning we use at the beginning of each week’s Intermarket Report where you can follow along by joining our membership services for daily or weekly commentary, education, and timely analysis beyond the daily blog commentaries.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

While internals are always secondary to price, it’s still important to listen to the message sent by the number of stocks advancing minus those declining (Breadth) with respect to the movement of the equity index itself.

Here’s two perspectives on the “Collapse” in Internals with respect to the surge in equity prices:

The first chart shows us the full April period (to present) with respect to NYSE Breadth ($ADD) and Volume Difference of Breadth ($VOLD).

To recap, a Breadth reading/indication is the difference (subtraction) between advancing issues (those positive on the session) and declining issues (those negative on the session).

The red highlighted periods signify phases of Divergences or Non-Confirmations with respect to price (falling internals with rising prices) while the one green period shows dual positive divergences.

The MAIN LESSON is that price so far has been shaking-off or ignoring the message from internals, meaning the trend dominance overrules the signals from internals.

As the old saying goes, like volume divergences, internal divergences do not matter “until they do” (until price reverses as was the case the last time we saw a price decline from April 11th to the 19th).

A closer perspective drills into SP500-specific internals for a clearer picture:

The 5-min chart above uses only the stocks in the SP500 to calculate the Breadth reading (meaning an indication of 400 signifies that roughly 450 stocks are positive at that moment against 50 which are negative at that moment in the trading day).

The colorful indicator under $ADSPD (SP500 Advance-Decline Difference) is simply a visual representation – a color-coded histogram – of the breadth indicator for clarity.

Numerically speaking, the chart peak of SP500 Breadth occurred straight off the open on May 3rd (the “Jobs Report” breakout day) when the indicator registered a session high of 455.

We can see price creeping its way powerfully higher in pro-trend fashion, yet along the way, internals quietly diverged with the price index.

In fact, with a new all time headline-grabbing index high into 1,635, internals barely managed to poke their head above the zero-line, registering a session high reading of 46.

At the all-time high, 273 SP500 stocks were positive on the session against 227 which were negative at that time.  For the period before and after the intraday high, more SP500 stocks traded negative on the session than were positive (which is logical since the index spent the majority of the session negative).

What’s the bottom line?

Trends can most definitely continue (or extend) beyond what most traders feel like they should, and as such, price is the ultimate arbiter of our decisions, not internals or indicators when messages conflict (this includes other forms of analysis as well).

Nevertheless, we do look “beneath the market” to assess the strength or health of a price swing or trending impulse in motion.  We do this to gather clues with respect to leverage, trade management, and game-planning.

A market moving up with strong volume and internals has greater odds of continuing (reference the big bullish confirmation on May 3) and thus we can trade more aggressively with larger targets and greater confidence during these periods.

A market steadily moving up on declining volume and internals has reduced odds of continuing and thus we need to be more cautious, less aggressive, use tighter stops, and play for smaller targets when compared to the opposite type of bullish confirmation environment (again, reference early May).

It’s easy to get caught up in bullish headlines and sustained trend moves, but for long-term trading success, it’s often better to be more aggressive with our pro-trend trades when a price trend is confirmed by volume and internals, not contradicted by it.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

Follow along each evening by joining our membership services for daily or weekly commentary, education, and timely analysis beyond the daily blog commentaries.

In other words, what looks like a grand breakdown opportunity on a Daily Chart may be a high probability bull-flag retracement set-up into support on the Weekly Timeframe.

That’s exactly what happened in April with Google’s chart so let’s take a quick moment to see this situation and take a moment to review the importance of using more than one timeframe for our trading decisions, if only for a filter.

Here’s the Daily Chart of Google (GOOG) as it developed a breakdown short-sell opportunity on April 18:

After a persistent uptrend that began with the November low, a natural pullback or retracement developed through March and April.

Generally, the dividing line between a retracement (pro-trend) expectation and a reversal (trend reversal) outcome is how price behaves relative to trendlines and rising moving averages.

For example, the breakdown and volume spike into April suggested Google shares were headed for a logical reversal instead of a pro-trend retracement like that which occurred in January.

Aggressive traders would be entering short-sell/breakdown orders to profit from an expected price slide to the downside.  They would also locate their stops at various levels above $770, $790, and even $800.

This would be the correct or logical assumption given the facts as they developed on the Daily Chart timeframe.

However, this wasn’t the whole story, and those who viewed only the weekly chart had a completely different interpretation:

Pretend for a moment we didn’t see the Daily Chart above and we’re a swing or position trader who likes to buy pro-trend retracements to key support/inflection areas.

We would likely see the chart above as a grand buying opportunity, or at least a low-risk opportunity to play a possible inflection up off the rising 20 week EMA and prior high (polarity) with a target movement at least to the prior swing high near $840.  Logically, our stop-losses would be located under $765, $760, or lower.

Viewing the weekly chart, there is nothing at all (with the exception of the negative momentum divergence) that suggests a reversal or bearish expectation, at least while price remains above the critical $760 inflection level.

The main idea is that Daily Chart short-sellers would have benefited from the extra information – and opposite perspective – provided by the weekly chart.

It would change their set-up from automatically short-selling the valid Daily Chart breakdown instead to wait for a confirmation trigger – and thus breakdown signal – provided by the breakdown under $766 and $760 on the Weekly Chart.

Note the highlighted Green/Red box over the prices.  This is how I tend to view “IF/THEN” outcomes in terms of price movement off a key inflection level.

IF weekly buyers step-in to overcome daily sellers into the $766 inflection level, THEN price will rally higher potentially to target or exceed the prior swing high into $840 in a pro-trend impulse.

However, IF weekly buyers do not step in and instead selling pressure continues to break price under the $766 key support level, THEN we would expect daily chart sellers with weekly chart breakdown sellers to push price down toward the next inflection target into $715.

We don’t know the outcome of a given set-up, and we can only plan IF/THEN contingencies and manage positions that trigger as price moves toward a target level or away from an inflection level.

While we can stop the lesson here with the Daily/Weekly integration, savvy traders will take it one step further to view a frame LOWER than the Daily Chart for clues on the chart that are developing as price interacts with this critical support area.

Here’s the quick view of the 30-min intraday chart as Google closed into the $766 20 week EMA ‘make or break’ level on April 18:

I won’t comment too much on the lower frame chart other to say momentum revealed a positive divergence relative to the early April price low into $770 when compared to the ‘current’ push into the $766 critical inflection level (a bullish signal).

We also see a falling parallel trendline channel intersecting the $766 level as price trades into this inflection zone (this is also the entire “flag” trendline as seen on the weekly chart).

Once again, we don’t know if Google will hold and reverse here (a bullish trade if so) or else breakdown and continue the short-term downtrend (a united Daily and Weekly breakdown sell signal if so).

The key is seeing the importance of the potential inflection level on the weekly chart that can’t be seen on the daily or intraday charts.

By the way, here’s the outcome of this lesson and set-up:

Buyers stepped in at the $766 inflection level, turning the tide back to demand/bulls and the outcome was the pro-trend continuation set-up as seen on the Weekly Chart.

Perversely, those who viewed the Daily Chart and took the valid breakdown signal later contributed to the upward price action as they became buyers to cover their short positions, creating a temporary ‘feedback loop’ or small short-squeeze.

For trading triggers, aggressive traders can buy as price trades along the higher timeframe support level while conservative traders can “wait for additional proof” in the form of a breakthrough above the falling trendlines and/or falling daily EMAs, both of which occurred under $800 as highlighted.

For additional examples of this “Dual Timeframe Conflict” lesson, view my prior posts on the topic:

“IBM Quick Lesson in Multiple Timeframes, Divergences, and Earnings”

“Goldman Sachs (GS) Threatens Cradle Sell (but watch Weekly Chart)”

“Daily and Weekly Conflicting Opportunities in IBM.”

Updated Post on IBM Shows Why Multiple Timeframe Analysis is Critical.

The Weekly Bullish Signal in IBM overpowered the Daily Sell Signal in that example, similar to the one here in Google.

“Bullish or Bearish on RIMM?  Depends on Your Timeframe.”

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

Follow along each evening by joining our membership services for daily or weekly commentary, education, and timely analysis beyond the daily blog commentaries.

For example, the NYSE Intraday TICK high on an ohtherwise bullish-dominant session was “only” 777.

Let’s address that reality with our current TICK Volatility Update chart for May.  This time let’s start with the Weekly Chart:

We’ll start with a description of each indicator on the chart above.

We see the Dow Jones Industrial Average (the chart is similar to the SP500 for comparison) along with the blue NYSE TICK indicator.

I’ve added a 20 week simple moving average (black) to the intraday TICK high and intraday TICK low as a way to smooth the data.

The “TICK Average” custom indicator is simply the addition of the 20 day average TICK high with the absolute value (because it is a negative number) with the average 20 day intraday TICK low.

The indicator mathematically summarizes what we can see for ourselves on the TICK and 20 day average indicator.

Perhaps what surprises me the most is that the TICK average indicator has consistently been registering new decade lows since the breakdown and compression in mid-2012.  Last week saw yet another new average TICK value not seen since early 2002.

In other words, as I continually stress to members and in open blog posts, “We MUST Consider Volatility When Trading with the TICK.”

Additional research can be found on the post “Research in Behavioral Changes in the TICK Over the Last 10 Years.”

Let’s now view a chart of the TICK itself for emphasis on the changes over the last decade (updated):

The chart above is simply the enlarged version of the TICK and 20 week simple average (intraday highs and lows) seen on the Dow Jones chart.

It makes it easier to compare periodic changes in terms of increases and decreases in intraday TICK highs and lows (“TICK Volatility”).

Our recent period of sustained decline in the NYSE TICK (highs and lows) began in mid-2011 (arguably early 2010) and we can see the visual compression that has taken place (note the blue lines with the actual TICK high/low data along with the black average).

For intraday traders, it’s important to note that a fixed TICK value like the popular 1,000 means different things during periods of high or low average volatility.

A 1,000 TICK reading is far less meaningful for signals/trade triggers in a period where the average intraday TICK high or low is above 1,200 when compared to the same 1,000 reading when the daily average value is near 800 in a low volatility environment.

Let’s finally update the current Daily TICK Average values so we can adapt our strategies:

In simple terms, the current 20 day average intraday NYSE TICK high is 874 while the average intraday TICK low is -817.

This means for intraday or swing traders who take the NYSE TICK into account when making trading decisions (such as short-selling/taking long profits at a +1,000 TICK reading or buying/covering short profits on a -1,000 TICK low reading), the updated values for importance should be near 875 (TICK high value) and -815 (TICK low value).

By the way, it should be inferred that periods of heightened intraday price volatility – and increased intraday TICK highs/lows – correspond with sell-offs or down movements in the equity markets while periods of low price volatility – and low intraday TICK high/lows – correspond with stable, rising up-swing periods.

Volatility itself is cyclical and spans between sustained periods of increasing and decreasing intraday range or price movement.

For prior updates and additional information on the “TICK Volatility” Concept, view any of the prior updates:

• February 2013:  “Monthly TICK Distribution Chart for January”
• January 2013:  “Intraday TICK High/Low Statistics from 2008 to 2013“
• January 2013:  “Updating TICK Volatility Charts to Start 2013“
• October 2012:  “Updating TICK Volatility for Intraday Traders“
• December 2011:  “Updating TICK Extremes for Trading Reference“
• Updating TICK Extremes for Intraday Traders (June 28, 2011)
• “Why You MUST Consider Volatility When Trading with the TICK”
• “Research in Behavioral Changes in the TICK Over the Last 10 Years”

Though I don’t discuss TICK Volatility in every member report, you could also follow along along each evening by joining our membership services for daily or weekly commentary, education, and timely analysis beyond the daily blog updates on these concepts.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s book The Complete Trading Course (Wiley Finance) is now available!

First, the broader 30-min intraday picture:

I’ve highlighted three prior days where Market Internals (Breadth and Volume Difference of Breadth) clearly diverged with price.  You can see the outcome in each of these three recent events.

Typically, strength (or confirmation) in market internals tends to precede continuation or higher prices yet to come while weakness (new lows) in internals forecasts lower prices yet to come.

I’m keen to focus on divergences or non-confirmation signals to provide clues for potential short-term reversals or retracements that set-up two or more days worth of trading in a new short-term reversal direction.

For reference, the three prior divergence days occurred on April 11, April 18, and finally April 25.

We see a current divergence as we turn the corner into the new month of May 2013.

Here’s a ’step inside’ view of the current structure:

While price remains in a clear intraday uptrend, is it stalling or finding resistance just under the critical and obvious resistance target of 1,600.

Market Internals suggests caution or a potential short-term reversal may be more likely than an immediate breakout, but divergences DO NOT guarantee reversals.

For example, take the case of the clear divergence into April 25th.

With the first push into 1,590, price did trade lower in the morning session of April 26, falling points, but a mid-day “V-Spike Reversal” pattern resulted in a continuation of the prevailing trend.

In other words, the divergence was “good” only for a retracement, not a short-term or multi-day reversal event.

That’s what we’ll be watching currently with respect to the 10 point morning sell-off as we start May.

As we observe the market reaction to the upcoming Federal Reserve policy decision, keep focused on key short-term trendlines and the caution sign from market internals.

In the event price does swing to a new index high, be sure to update your chart of market internals and see whether they confirm the new high or else extend the current divergence pattern.

Follow along each evening by joining our membership services for daily or weekly commentary, education, and timely analysis beyond the daily blog commentaries

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

Let’s see what possible price pathway may be in store if history is a guide, while being impressed at the similarities between the two structural bull markets.

First, the broader Monthly Chart comparison of both bull markets:

I color-coded key monthly swings for comparison purposes.

Note how the present bull market/uptrend has traveled more distance than the prior recovery (current bull:  927 points and counting when compared with the prior bull market 808 points traveled).

Both Bull Markets began with a sustained upward swing to ignite or “kick-off” the trend reversal.

While the 2003-2007 period had smaller monthly retracements, the present bull market had steeper but fewer retracements in the earlier phase of the recovery (new trend).

Toward the end (or at least the end of the 2007 period), both bull markets experienced large upward swings compared to more frequent small or shallow retracements.

It’s this “end of the 2007″ period that grabbed my interest, specifically with respect to the structure of the present rally.

Here’s a special Overlay Analysis chart of both bull markets on the same chart (but different scale):

I copied the 2003 to 2007 price movement and pasted it to the 2009 low to get a sense of the structural similarities – while the upper chart is scaled appropriately, the lower chart (the 2003 – 2007 period) is scaled starting with the 666 low.

Again, we see the strong “kick-off” or sustained upward reaction that began both trend reversals.

From there, we see a steeper 2010 correction than the 2004 period, though both markets continued their uptrends through 2011 (and 2005 respectively).

Again, we see the sharper pullbacks/corrections for the present bull market in comparison with the shallower periods from 2004 to 2005.

Toward the end of the 2006 period, the Bull Market continued with sustained upswings that lasted throughout 2007.

Our current Bull Market also developed strong sustained upward movement through 2012 and of course the present 2013.

While there’s absolutely no expectation that two bull markets will be identical, we can compare their larger similarities, particularly in terms of structure (sequence of highs and lows), distance of swing, and periods of uptrend continuation or counter-trend retracements.

If we look at the current message from 2007, we see a potential pathway for price according to a historical similarity or repeat phase.

I’m focusing my attention on the early 2007 retracement when compared to the late 2012 retracement period, both of which were followed by a sustained, week-over-week rally.

The comparable pro-trend swing from late 2007 rose 188 points while the current swing has traveled 244 points and climbing.

Once again, IF history provides any clue to a possible resolution currently, we see a sharp sell-swing occurring (it began July 2007) ahead of a final peak in October.

We always monitor these type of historical comparison analyses by assessing to what degree the current market “follows a similar structural pathway” as the past along with to what extent price deviates or ‘breaks’ the historically similar pathway.

For now, we will be monitoring for any type of sell-off, and if that does happen (instead of this upward swing continuing to extend well beyond 1,600), we’ll update the comparison to include a potential “rally to a new high” phase.

That’s about as far as we’d want to compare the price pathways for the moment.

Continue monitoring these uptrend structural similarities with respect to the analysis, key levels, and indicators you are using currently.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available