What started with a reasonable setup turned into a do-nothing session, with the narrowest range in about ten days. We began with a small gap below yesterday’s low, and almost exactly to a 127% external retracement of the rally from yesterday’s final pivot bottom. The first bar reversed the move and created a divergence in the Stochastic.

Narrow Range
This type of setup often leads to a nice rally, but they are not supposed to retrace 89% as happened by the 7:30 pullback. They also don’t go back outside of the previous day’s range. From that point I became very cautious and just watched for the rest of the day.

By lunchtime it was obvious that the market was forming converging trendlines which can set up a WEDGE pattern. I like wedges for potential trades, but the best ones will form after an extended move. Today, with the small early range, I wanted the additional confirmation of a divergence on the pullback that occurred right at the point of the wedge. The pullback occurred, but the divergence didn’t.

By the time we got a triple top and a divergence I didn’t trust the pattern, although it finally retraced the entire height of the wedge to meet its expected target.

I was a bit hesitant from the start today, since my data provider showed the Russell trading for two hours Monday (with almost no volume) when the U.S. markets were closed. That means that I had to choose between drawing trendlines and Fibonacci measurements either using this additional data or ignoring it. Neither ended up giving good signals so stopping early, although frustrating, wasn’t a bad decision.

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