Today's morning session gave us another excellent example of how TICK (internals) and Momentum divergences can precede intraday reversals… or at a minimum, fail to confirm new price highs on the session which is a warning sign that traders can sometimes miss. Let's take a quick look at this example and the lesson it brings.
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The morning session opened strong with positive economic data driving the market higher. However, as prices continued their pathway higher, market internals and ‘momentum' were failing to confirm these new intraday highs.
In this case, as can often happen when similar divergences develop, the internals "caught up" with price and we had an intraday price reversal that flipped price movement from positive to negative within the span of a few hours.
The momentum oscillator is the 3/10 Oscillator, but it could just as easily be a Rate of Change or any other momentum oscillator. The goal is to compare price highs to oscillator highs. If the oscillator forms a lower swing high when price makes a higher high, then this gives us a negative momentum divergence as seen in the highlighted zone.
The TICK reflects market internals and reflects the difference in stocks "ticking" higher at a given moment vs those "ticking" lower. TICK highs should logically confirm or go along with new price highs.
If price forms a new high while the TICK index forms a lower high - as shown above - then this also is a negative divergence and serves as a non-confirmation of the price highs.
Just after 9:00CST, price formed a new high with the TICK index registering 1,073 more stocks "ticking up" than ticking down. Later, after 9:30 CST (on the 1-min chart), we see an absolute new price high on the session, though the TICK index now registers 930, locking in the negative internal divergence.
Price then reversed from this level, leaving the TICK and Momentum divergence underneath the intraday price highs.
I go deeper into describing this, along with many other set-ups, opportunities, and lessons in each day's "Idealized Trades" Daily Report, which is both an educational service to teach you specific intraday trading insights via examining multiple examples of a concept, and a "what might we look to do tomorrow?" service in terms of levels to watch and structural opportunities of which to be aware. Check out the page for more information.
Always compare market internals with price for a deeper, more insightful picture of what's really happening beyond the flashing prices of the intraday charts.
