Exposing Ideas to the Envelope of Serendipity

Contact moo at: bluechipbulldog@gmail.com

Friday, May 1, 2009

via Afraid to Trade.com Blog by Corey Rosenbloom on 4/30/09

Using today’s price action so far as an example, let me walk you inside the price action for April 30, 2009 in the SPY to discover that massive TICK, Breadth, and Momentum divergences all formed, clueing you in that a price reversal was far more likely than price continuation.  Let’s walk through the market internals quickly to see how knowledge of this concept could have led to profits.

Let me walk you through this chart step-by-step so you can make the most of it.

The main idea to learn is that a TICK and Breadth divergence formed as price made weak new highs, and the doji reversal candles at the highs - complete with TICK, Breadth, and Momentum (not shown) Divergences all signaled a powerful low-risk short-selling opportunity that was irresistible.

To show this, let me explain the functions on the chart.  We’re looking at the 1-min SPY (S&P 500 ETF).  Underneath (in blue) I’m showing the TICK (number of advancing stocks on an uptick at the moment minus number of declining stocks on a downtick).  On the third line, I’m showing just the Number of NYSE Declining Stocks ($DECL) - usually you look at this in conjunction with the Net Advancing Stocks ($ADV) but the hidden signal came from the advancing stocks remaining the same but there was a steady ebb upwards in the number of stocks that switched to declining on the day - that’s what I want to show).

The remainder of the article is here.

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