Swing Trading Strategies & Stock Picks Since 2003

Pardon the sensational title, but I wanted to take you inside the 30-minute chart on the DIA and the S&P 500, which I will describe as “Trader Hell.”  I’ll also show you the key levels to watch as we near the end of our consolidation and expect a breakout move very soon.

DIA 30-minute chart:

I’ve drawn a bit more than I normally do on this chart so let’s take it step-by-step.

First, look at the zone I call “Trader Hell.”  I call it this because of the vicious swings and large-scale gaps which were all contained within an unknown at the time range that halted any price move outside of it.  We as traders tend to like trend moves or at least impulse moves from one zone to another, but tend to perform poorly when price stays locked in a range that only becomes clear in hindsight.

Second, look at the Momentum Oscillator, which is giving us no clues whatsoever.  I take clues in the form of divergences and new momentum highs (or lows) and the oscillator becomes totally useless while price stays locked in a trading range - where we are now.

Next, look at the label “Volume Decline.”  This would look better on a daily chart, but you can see that volume has ‘dried up’ as we’ve enjoyed this recent upswing in price from $79.00 to $82.50 which serves as a non-confirmation of higher prices.  We’d generally want to see expanding volume on a price swing to the upside, though the divergence in price and volume is serving as an early warning.

Finally, look at the extremely tight range we’ve formed this week.  We have a horizontal trendline at $82.50 and then a rising trendline that terminates currently at $81.30, locking price within a $1.00 range between significant support and resistance.

Also, the key moving averages - which lose their significance in a trading range - have turned bullish and are serving as possible support for price.  This is clearer on the 60-minute chart.

In short, we’re forming a tight coil and expect price to break strongly one way or the other out of this range very soon.

Let’s look at the actual S&P 500 on the 30-minute frame to see a bit of hidden bullish strength.

S&P 500 30-minute chart:

The above analysis for the DIA is similar to that of the S&P 500, but I wanted to highlight that we’ve broken last week’s highs and are challenging resistance from mid-January’s 850 to 855 range.

We’re also experiencing tight consolidation and a sort of triangulation in price in the index which should be resolved soon.  One could call it an ascending triangle (which is bullish) or one could say we’re at the upper range of a larger rectangle (which is neutral).

Whatever it is, the S&P 500 is showing slight relative strength to the Dow Jones at the moment.

Be prepared for a breakaway move and consider standing aside until we get it.  The Federal Reserve is meeting and will be speaking tomorrow so be prepared for the possibility of a big move either way.  Price has formed a tight balance and it might not take much to upset it.