Wild Intraday Action

October 10, 2008

I’ve never been so happy a weekend has arrived.  Before that weekend starts, let’s take a look at the 1,000 point intraday swing in the Dow and other insights from the intraday trading for October 10, 2008.

$INDU 5-minute chart:

Folks, a 1,019 point Dow intraday range is nothing to sneeze at - it is absolutely remarkable and worth further attention.

The global markets fell roughly 10% each, and the US Equity Futures were off around 5% with the equity markets opening roughly in line with the futures, selling off, then sharply rallying… only to drift slowly lower all day… until the final hour where miracles happened (or curses for the short-sellers) into the close.

Are technicals valid in this environment?  They provide and identify structure and probabilities and allow snap-analysis of risk-management points as well as possible price targets.  It’s just that this environment is driven far more by emotion and news than anything, so while technicals can be helpful, they are not, and will never be absolute or infallible.

Nevertheless, price did respect the falling 20 period EMA and made a series of ‘clean’ lower lows and lower highs all day until the positive momentum divergence ‘caught up’ with price and then the index violated the 50 period EMA, shifting to a bullish breakout from consolidation and resistance.  That sharp 8-bar rally up underscores why it’s difficult for both longs AND shorts - if you were short and didn’t take a stop-loss, you could have endured a sudden 800 Dow Point rally against you, potentially destroying a small (overleveraged) account.

Price stopped at 8900 - the 200 period SMA before falling back into the close - how wonderful (for the bulls) would it have been to have achieved a positive close this Friday?  It wasn’t meant to be (in the Dow).

With 8 consecutive down-days in the Dow, where does that leave us on the Daily chart?

$INDU Daily Chart:

Price made a new low well beyond where most people expected - it was absolutely brutal.  People tried to catch bottoms along the way but it also wasn’t meant to be.

Price has now formed a ‘doji’ which could be a reversal signal but you don’t need to bet the farm on anything in this environment - stay small and heavily risk-controlled.

Print and annotate multiple stock charts and analyze them this weekend - it will be a helpful exercise that will add some perspective, as well as enhance your pattern recognition.  Plus, this kind of persistent down-moves aren’t likely to occur often (so we hope) so it could be interesting to observe them while the exist.

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