Anatomy of an ES Intra-Day Reversal

Most major reversals occur near a previous turning point (actual pivot point) on longer time frame charts.



In Friday's market, we had a reversal near the 1320 resistance area, and another near the 1270 January low. In the example in the above chart, we are still 12 ES points above the 1270 area; however, it late in the afternoon with the close of the energy pits and the winding down of the bond pits. By this time on Friday, many pit traders have left for the weekend. So, if traders are interested in picking up bargains in a weak stock market, this is a good time.



On the 1 minute $TICK chart, I use a 10 period EMA of the close and a 25 period EMA of the ((H+L+C)/3) value. This gives me a good indication of short term momentum in the underlying NYSE market. As can be seen in the chart above, the futures jumped up 12 ES Points with a 50% correction. Since these moves usually form a three wave leg (Initial Swing Wave, Correction Wave and a final Impulse Wave), a good place to jump in is after the correction leg is complete. The $TICK Average Indicator helps me see when this occurs by watching the two EMA's.



After the final Impulse Wave was complete with good market symetry, the $TICK Indicator turned negative at around 1527 ET.














The NYSE Advance - Decline Line on a 1 minute chart also was confirming the reversal by making higher highs and lows. This Indicator formed a lower low at around 1529 ET, which is two minutes behind the $TICK Average Indicator.







Even the $TRIN Indicator confirmed the reversal by spiking to the downside, which is a bullish indication. This is usually caused by an increase in upside volume in the cash market.



Charles