One of the keys of a ‘Rounded Reversal’ is the early morning lengthy divergence.  As price continued to form lower lows off the open, the momentum oscillator and the TICK - with the exception of one spike - formed higher lows.

These developments - positive divergences - serve as non-confirmations of lower prices and hint - not guarantee - that a trend reversal is a strong possibility.

Rounded Reversals are the “Enemy” of Trend Days, but they reflect an orderly transition from supply (sellers) into demand (buyers) without a climactic spike of capitulation selling - it’s an orderly transfer of ‘balance.’

The Rounded Reversal is officially confirmed when price breaks above the 50 EMA on the 5-min chart, or forms a type of “Wyckoff Sign of Strength” or just a simple “Initial Sign of Strength,” being a new TICK and Momentum high when price has not yet formed a new high.

The Sign of Strength - or official point of “Type of Day” structural reversal occurred just before 1:00pm CST.

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Sometimes you can see divergences - particularly lengthy divergences preceding trend reversals - better on the 1-min chart intraday, as shown above.

Rounded Reversals can be tricky to trade if you are not watching an oscillator or looking for divergences, though you can even see the “Rounded Arc” forming in price without the need of an oscillator.

See some of my prior posts on Rounded Reversals:

November 17:  Great Intraday Example of Rounded Reversal and TICK Divergence

September 30:  Interesting Intraday Example of Rounded Reversal in GLD

August 27:  The Anatomy of the Aug. 27 SPY Rounded Reversal

August 18:  SPY Rounded Reversal into Fibonacci Confluence

For a full description of educational concepts and opportunities on Friday’s trading day, as well as archives of each trading day since April with concepts and lessons and examples explained in detail, join my Idealized Trades member service.

The more you see and understand these concepts, the more you’ll be able to recognize them and then trade them successfully in real time.

Corey Rosenbloom, CMT
Follow Corey on Twitter:  http://twitter.com/afraidtotrade

This cycle has held up so far, and it’s allowed me to call successful predictions recently upon recognizing it earlier.

If the cycle repeats, then you have a clear roadmap to the near future.  Let’s see it and watch as to whether or not the cycle repeats into the end of November.

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The observation is as follows:  Price has made the low of the month in the first few trading days of September, October, and (so far) November.

Price has rallied without a pause - I’ve been calling it “Short Squeezes” or “Bear Traps” or “Popped Stops” - until the middle of the month - around the 20th/21st.

Price has formed negative momentum divergences into the new highs, along with dojis or reversal candles on the daily chart at the swing highs.

Price has fallen sharply, but only for about a week, into the final days of the month.

If this pattern repeats, then we could expect a minimum pullback to the 1,045 or so level into the end of November - perhaps that move down has already started.

Or - to play devil’s advocate - since more people are catching on to this cycle, the cycle will do the opposite of what’s expected, meaning price will thrust to a new high.

But without getting too deep, let’s see if  history does indeed repeat, and if it does, then let’s target sligtly lower levels on the S&P 500.

For prior posts, see the following related to this cycle and prior ‘predictions’:

Nov 17:  “Triple Measured Moves Show Market Character in SPY”

Nov 16:  “A Look at Prior Peaks in the S&P 500”

Nov 9:  “New S&P 500 Highs Forecast by Fifth Sprung Bear Trap”

Nov 5:  “Andrews Pitchfork Update for S&P 500”

As always, I keep subscribers of the “Idealized Trades” service updated of the developments I’m seeing in additional detail.

For “bigger picture” analysis and opportunities across five major markets and three timeframes, consider joining the Weekly Intermarket Report service.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

First, let’s observe that the weekly trend structure has formed lower swing lows and lower swing highs, which is the characteristic of an intermediate term downtrend.

However, the weekly moving averages have crossed “bullishly” (the 20 EMA - green - crossed above the 50 EMA - blue - in September) which argues for a possible new uptrend in the making.

As long as price stays above these moving averages - which form confluence support - then this would support the ‘new uptrend’ approach.

The 20 and 50 EMAs converge at the $14 per share level… which is where price supports currently.

This would be the confluence support zone to watch - as well as a key “line in the sand” to watch for clues to the future structure.

Any move under $14 would argue for a bearish bias… though if price supports off the $14 level, the new uptrend bias would hold.

Above price, I’m showing two Fibonacci grids - one starting with the October 2008 high and the other from the August 2008 highs - both of which end at the 2009 price lows.

We observe a confluence resistance area at the $17.00 per share level as shown and highlighted on the chart.

Price failed to overcome this confluence resistance level on the recent swing to new 2009 highs in August and September.

So DELL stands between confluence support and resistance - a break above or beneath either should give us clues as to what to expect going forward.

Let’s keep our eye on these levels!

Corey Rosenbloom, CMT
Afraid to Trade.com

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

1.  An excellent bookmark and reference page from Darwin’s Finance: A List of Every ETF Known to Man

2.  John Forman of the Essentials of Trading addresses a reader question on “Market Makers and the Opening Gap” where gaps are explained logically.

3.  An excellent bit of research from Rob Hanna of Quantifiable Edges on Morning Strength in the TICK (first 30 min) and the positive performance of the market into the close.

4.  From a Dash of Insight, we get two excellent recent posts regarding the US Dollar Index and the Stock Market:

Dollar Weakness and Stock Strength (the data)

Understanding the Debate on the US Dollar

5.  I wanted to highlight two recent posts from the Stock Chartist:

An interesting comparison of Lunar Cycles and Stock Cycles (overlaid)

One View of the Market Future

6.  From My Trader’s Journal, a Six-Month Chart of the Dow Jones Index, showing a widening parallel trendline.

7.  From the Technical Take, a post on “Three Breadth Charts You Won’t See Anywhere Else…” all of which are showing negative divergences.

8.  From Jeflin’s Investment Blog, a lengthy article entitled “Get Real on the Economic Recovery and Stock Rally” which addresses underlying weakness and looks ‘under the numbers.’

Bonus Picks (Because I can only select 8 on the official site and I start at the bottom and work my way up):

The Kirk Report lists “Common Elements of Success”

From Prieur du Plessis:  “Plunging Dollar Erodes Non-US Investors’ Returns”

From Fund My Mutual Fund:  “Best Performing Stocks of the Decade” (interesting)

From Dr. Steenbarger of Trader Feed:  “Hypothesize, Strategize, Revise:  How to View the Morning Open” (bookmark post as a reference to trading strategies in general)

From Barry Ritholtz of the Big Picture: “How Does the 2009 Rally Stack Up with the 1982 Rally?”

Lots of great reading this week!

If you are unable to attend the Las Vegas Traders’ Expo, the staff at MoneyShow.com will be recording my presentation (along with many other free presentations from the Expo) and you will be able to view my presentation live … for free!

No travel cost, no hotel cost, and no registration costs!

On Thursday, November 19th - right after the market closes - I will be speaking at 4:15 EST (1:15 PST) giving a presentation entitled “Best Intraday Trades to Take using the TICK and Momentum Concepts.”

As a quick overview, I will start by discussing “Structure” including how to determine ‘day’ structure and how that will be the #1 determinant of what strategies you should use for the rest of the day.

I will then move to discuss the “Momentum Principle” and how momentum concepts - such as “Momentum Bursts” and “Momentum Impulses” (using an oscillator and the TICK) have a leading effect on price, and how TICK Divergences - one of my favorite set-ups - can precede intraday price and structural reversals.

I conclude by explaining the “Enhanced Flag” trade set-up and also - another one of my favorites - the “Three Push” pattern and where it fits in the day structure.

I will explain logical entries and places to locate stop-losses on both set-ups.

I’m attaching the official press release from MoneyShow.com and links below for additional information and free registration.

Free Webcast Event Featuring Corey Rosenbloom, CMT LIVE from The Traders Expo • Las Vegas

HOME INVESTING TRADING VIDEO EVENTS TOOLS

On the heels of some surprising earnings reports, M&A activity, and new economic data, we’ve seen heightened volatility in the markets. Traders are keenly watching stocks, gold, and the dollar as we head into the end of the year. With this in mind, I want to invite you to my FREE Webcast event airing direct from The Traders Expo • Las Vegas . Log on to MoneyShow.com to join me—and traders from around the world—Thursday, November 19, 2009. Please register FREE today, and join thousands of other traders from around the world as you experience LIVE Webcast events from The Traders Expo •Las Vegas—coming soon to MoneyShow.com! I look forward to connecting with you! Sincerely, Corey Rosenbloom, CMT Founder and President, Afraid to Trade Thursday, NOVEMBER 19, 2009 After Market Close 4:15 PM - 5:15 Pm EST (1:15 PM-2:15 PM PST) Corey Rosenbloom Best Intraday Trades to Take Using TICK and Momentum Learn how to identify and tweak two of the best performing intraday patterns including “Enhanced Flags” for the highest probability, lowest risk entries using price momentum concepts as well as unique “Tricks of the TICK” intraday for index ETFs, futures, and leading stocks. .. More Details >

It’s an ambitious agenda to cover in an hour, but I’ll do my best to cover as much as possible and still leave room for a Question and Answer session.

Oh, and since I’ll be presenting in Las Vegas, I won’t be able to resist discussing a few quick points on “Edge” and how you should always focus on both the “Accuracy Edge” and “Monetary Edge” in any trade you take.

My thanks to everyone at the MoneyShow.com and Traders Expo staffs for making this event possible and allowing me to participate in this webinar for you.

If you’re a blog reader attending at the Expo, I’d love to meet you!  I’ll stick around after the presentation to chat.

I hope to see you there or at the webinar!

Corey Rosenbloom, CMT

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I’ll discuss this in more detail along with other intraday lessons and trading opportunities for reference in today’s Subscriber Idealized Trades” report, but I’ll hit the quick highlights here.

As price began making lower lows on the session, the 3/10 Momentum Oscillator (information via this link) formed what appeared to be a triple-swing positive momentum divergence into the absolute lows after 10:00 CST.

That’s a non-confirmation of price lows and hints of a reversal, but there’s something that’s much more ‘powerful’ when it forms divergences in terms of forecasting - the NYSE TICK.

As seen by comparing price lows to TICK lows in the highlighted zone, as the SPY made its intraday swing low at $111.30, the TICK - a “Market Internals” Indicator - failed to form a new intraday low, and in fact formed its own clean and clear positive divergence.

While nothing is ever guaranteed, an absolute intraday price low on a multi-swing positive oscillator divergence which is met with a distinct positive TICK divergence places the odds strongly in favor of an intraday price (structure) reversal… and at least gives the opportunity for a short-term long (buy) trade.

For those so inclined to the ‘advanced’ work, notice that a 5-wave fractal move concluded as well at these intraday lows.

As price broke to higher highs and higher lows, as well as breaking a trendline (along with the 50 period EMA on the 5-min chart), the “Rounded Reversal” was officially confirmed and the upward bias was now officially in place, setting up retracement trades.

This is the kind of example and lessons that I will be discussing in this Thursday’s free Webinar

“Best Trades to Take Using TICK and Momentum“

You can register now at the MoneyShow.com to see live at the Las Vegas Expo this Thursday right after market close at 4:15 EST.

For more information as to the outline of the presentation, see my featured blog post on the presentation.

I hope to see you there!

Corey Rosenbloom, CMT

Let’s look at these three symmetrical swings - called “Measured Moves,” - and note the current level and how an exceeding of this level could hint at a shift in market “Character.”

(Click for Full-Size Image)

While this post is more of a study in recent history, it’s important to note the patterns that have developed over the last few months to see if these patterns or tendencies - also called “Market Character” - will repeat into the future.

If not, then we’ll know that the character is changing.

Observation 1:

Swing Lows have occurred at the very start of a new month, and then a strong rally has occurred, taking the S&P 500 to fresh 2009 highs each time.

Observation 2:

Swing Highs have occurred roughly in the middle of the month - near “Options Expiration” - and a sharp pullback - almost of a “Mirror Image” has occurred.

Observation 3:

On each swing up, price has rallied $8.41 in the SPY ETF (roughly 84 points in the S&P 500 Index)

Extrapolation into the Future:

If this pattern holds true once again, then we would expect to see the top of this swing soon and then an orderly pullback to take price back to the $105.00 level.

Caveat:

If price continues this week to make a new swing high and exceed the $8.50 swing in price, then that will be a hint that “Market Character” is changing and that we could no longer rely on these short-term observations to hold true into the future.

I took a look at similar logic in my October 21 post “Recent Measured Move Retracements in the SPY.”

Let’s keep a close watch if the SPY makes a new high this week, and if not, then we could be looking directly at the “Pathway Ahead” for prices… just look to the prior three months.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Andrew is a colleague and good friend of mine and he has been a strong supporter of me and my blog, and I wanted to return part of that favor by mentioning the Disciplined Investor Podcast’s recent nomination in the prestigious People’s Choice “Podcast Awards” 2009 contest.

Andrew would appreciate it if you visited the Podcast Awards site while voting remains open (voting for 2009 closes on November 30th) and - if you are a fan of the Disciplined Investor and want to show your support - vote for his podcast series in the “Business Podcast” section.

You can also broaden your awareness of available podcasts across almost any subject you can imagine with the other nominees on the page.

Andrew has interviewed me on three episodes of the Disciplined Investor, including

September 20th, 2009:  Professional Lessons on Trading and Technicals (with Larry Williams and I as guests)

May 19th, 2008:  Making the Grade with Afraid to Trade

April 5th, 2009:  Elliott Wave Theory in Action

Using the “Elliott Wave Theory in Action,” I made the public call in early April that the S&P 500 was likely to travel up to at least 1,000 if not beyond - and to think I was nervous at the time to make that call!

Andrew has hosted 135 episodes of the Disciplined Investor Podcast since starting the show.

Recent podcasts include

“Barry Ritholtz on the Most Hated Stock Market Rally Ever!”

“Trader Mark and McClellan Indicators” where Andrew interviews Tom McClellan himself as he shares insights on these popular oscillators

“Trading Legend Art Cashin”

“Mike ‘Mish’ Shedlock on ‘How Long Can this Rally Last?’”

“Trading Patterns of the Pros” with guests Toni Turner and Fausto Pugliese

“Monster Stock Ideas with ‘Dr. J’ Jon Najarian“

As always, thank you Andrew for your support and friendship, and best wishes as the voting continues!

Corey Rosenbloom, CMT

S&P 500 Daily:

I’ve highlighted the prior four ’swing highs’ or short-term peaks (prior to quick and short retracements back to support) in the daily chart.

On each, price was met with a negative momentum divergence and at least one (in August, almost five) doji candlestick at the highs of the upper Bollinger Band before a quick and sudden down day.

The behavior was for price to “chop” around at the highs indiscriminately before a sudden down-day formed.

I mentioned the liklihood for a new high based on reading the ‘behavior’ of the market (and seeing similar “sprung” bear traps) in my November 9th post:

“New SP500 Highs Forecast from Fifth Sprung Bear Trap.”

What’s different about this time?

For starters, price ‘looked like’ it was going to continue its retracement back at least to the rising 20 day EMA at a minimum, but today brought a swift and stellar upward candle (one hour prior to market close) which seemed to thwart the selling pressure or expected choppy environment.

Another difference is that there is perhaps one of the most distinct volume divergences I can remember seeing on a short-term daily chart of the S&P 500 in recent times.

I’ve been discussing that volume divergence in the following posts:

“A Look at Declining Volume on Five Prior Market Tops”

“How Else Can We Interpret Recent Volume Developments but be Bearish?”

With the 50% Fibonacci retracement of the “Bear Market” resting at the 1,121 level, let’s keep a close eye on price to see if buyers still have the strength to overcome this negative volume (and momentum) divergence and push through the long-term Fibonacci retracement zone.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

First, the S&P 500:

The “Measured Move” price projection target - using the Fibonacci Projection/Extension tool - comes in near 1,150.

Next, the Dow Jones:

The same price projection target comes in at 10,450 in the Dow Jones Index, roughly 50 points away.

The logic behind this tool is described in my “How do we Find Fibonacci Price Projection Targets” article which explains the use of the tool.

The basic logic is to observe a solid price swing, observe a pullback/retracement against that swing, and then “project” the 100% (or full) price projection of the prior swing starting with the low of the retracement.

This is the logic behind price projections in Bull and Bear Flags, but measured moves are loosely defined patterns that focus on price points instead of a pure pattern.

It’s not to say that price will hit these levels and fall downwards as if they were brick walls in the sky, but it will be interesting to note if price does move beyond the distance of the prior upward impulse from the March lows.

It would strongly suggest that the market was confirmed in an expansion phase if this ’swing’ from the July lows is greater in price movement than the move off the March lows.

Otherwise, the classical interpretation would have us expect resistance at these levels.

Corey Rosenbloom, CMT
Afraid to Trade.com

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