I’ve heard a few traders complaining about the range compression intraday in Google and thought I would give that a look - indeed, we’ve had a strange and lengthy (in day trader’s terms) consolidation in price, which sets the stage for a range breakout play ahead.
Let’s zoom-in on the 5-min chart in ef="http://www.bestwaytoinvest.com/quote/GOOG">GOOG to see the intraday price consolidation:
(Click for full-size image)
I’m showing the basic price chart intraday (5-min) stretched out over the last four days to show the sharp rally and then the droopy retracement that puts price currently in a one-and-a-half day trading range (rectangle/channel) that spans $2.00 from top to bottom.
That’s odd, because the daily ATR (Average True Range) for Google is $11.00. That means traders can expect roughly an $11.00 move each day in price (at least, taking the average of the last 14 trading days).
Speaking of ATR, using the standard 14-period ATR for the 5-min chart, we see that the average 5-minute bar has an expected range of 70 cents (on average).
That’s down from the $2.00 range from March 25th and 26th.
Pay very close attention to the ‘cyclic’ nature of the ATR and thus of price volatility… meaning remember the “Range Alternation” Principle (price alternates between periods of range contraction and expansion).
This chart is a great example of that concept. Therefore, traders - if they aren’t lulled to sleep - should be expecting a potential breakout move ahead for Google.
Notice also the stealthy spikes in volume on the 5-min frame above - that’s perhaps some big hedge fund moving and positioning while trying not to ‘upset’ the price.
Google (GOOG) Daily:
If you ever wanted to know how a doji forms on the daily chart, take a look at the 5-min chart previously to see how today’s doji candle formed in Google… step inside the candle!
A quick look tells us that the $558 level is a key area to watch, given that the 20 and 50 EMAs are converging at the $560 level, which is just under price currently.
Bulls stepped in with force and triggered a “Bear Trap,’ jamming price up after last week’s break under this level… doing so with a surprise bullish engulfing.
Notice also the volume ’smile’ in Google, where the down move ended on less volume (bullish) and the recent rally has been met with more volume (more bullish).
It’s something to watch… or trade!
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade
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