Fading a Trend - 10/17/08

In the 1 minute chart above is shown an interesting tool to fade a trend. Typically, the market will at least move back to the 20-period EMA.

The Cyan lines are the 2-period SMA of the (H+L+C)/3. The PaintBars are Red when the Close of the bar is less than the Open of that bar, and Green when the Close of the bar is greater than the Open of that bar. In this example, not only did we get a divergence of the 2-period SMA's, but also notice that the Futures bar was Green indicating continued strength while the $TICK bar was Red indicating weakness. The Futures then proceeded to trade down to the Moving Averages.

Charles