We've been waiting for a cyclical top and the pull-back in down trend to finish – see Friday's post on the Buying Climax. Today's action suggests this top is in and we're going to start testing the 1,340 lows.

I still remain bullish medium term and don't think this down leg will be too strong:

• Commitment of Traders Oscillator is in the Buy zone
• Bond market is down but not heavily
• US Dollar versus Japanese Yen is holding up (although close to a cyclical top)

However, the only "fly in the ointment" is that the cyclical low on a weekly chart still looks some ways off – see chart below.

Hilbert Sine Wave Cyclical Low Approaching (Emini weekly)

Got a nice Short entry that caught the top just before the market opened. Thought these charts showing the Better Sine Wave on multiple time frames might be of interest – volume indicator confirmation is not shown. This is one of my favorite patterns.

Hilbert Sine Wave Cyclical Top in Highest Time Frame (Emini 2,097 ticks)

Coincides with "End of Trend" in Lowest Time Frame (Emini 233 tick)

Good luck with your Emini trading.

Trading with Cycles Part 2 – Which Hilbert Sine Wave is Best?

Thanks to Victor H. and Rick J. for suggesting I look at the different Hilbert Sine Wave versions available. This article is a little heavy, but if you’re confused by all the Hilbert Sine Wave versions out there, this might help you pick out the best one to use.

How many versions of the Hilbert Sine Wave are there?

John Ehlers, the developer of the Hilbert Sine Wave, has created 4 different versions of this indicator and there are another 2 possible variations:

• Original code from “Rocket Science for Traders” using weighted moving average
• Original code using Jurik moving average smoothing (what I use)
• Original code using Hull moving average smoothing (fast & free moving average)
• Updated code from “Cybernetic Analysis for Stocks and Futures” book
• Alternative approach using Discrete Fourier Transform (DFT)
• Alternative approach using Bandpass Filters

I assessed all 6 versions on 2 criteria. First comparing support and resistance level signals generated by the Hilbert Sine Wave algorithm visually on a 233 tick chart of the Emini. Each version was given a visual score, relative to the original weighted moving average version (score zero).

Then I back-tested 4 different systems on a 699 tick Emini chart over 60,000 bars:

• Cycle trades (buy at support, sell at resistance)
• “Overshoot” trades (buy at overshoot of support, sell at overshoot of resistance)
• Breakout trades (buy at overshoot of resistance, sell at overshoot of support)
• 5th Wave trades (buy at pullback in up trend, sell at pullback in down trend)

The results of all the systems were then added together. Don’t expect great results for these systems – it is taking EVERY trade with no filtering – but it does allow us to compare between different versions of the Hilbert Sine Wave.

Which version of the Hilbert Sine Wave is best?

The results of these tests are summarized below:

Hilbert Sine Wave: Visual Score & System Results Trading 1 Emini Contract

Bottom line: The original code using a weighted moving average was best overall.

Wow, with all the hard work gone into improved versions – the original still works best!

Now, am I going to change from the Jurik moving average version I use day-to-day? Probably not, the pull-back to end-of-trend (or 5th wave) signals are very important for my in my Emini day trading and I think the JMA version in superior in this regard. But the analysis was enlightening.

The visual score charts are shown below with my annotations.

Hilbert Sine Wave: Weighted Moving Average

Hilbert Sine Wave: Weighted Moving Average (Emini 233 tick)

Hilbert Sine Wave: Jurik Moving Average

Hilbert Sine Wave: Jurik Moving Average (Emini 233 tick)

Hilbert Sine Wave: Hull Moving Average

Hilbert Sine Wave: Hull Moving Average (Emini 233 tick)

Hilbert Sine Wave: Cybernetic Analysis

Hilbert Sine Wave: Cybernetic Analysis (Emini 233 tick)

Hilbert Sine Wave: DFT

Hilbert Sine Wave: DFT (Emini 233 tick)

Hilbert Sine Wave: Bandpass

Hilbert Sine Wave: Bandpass (Emini 233 tick)

I hope this article was useful to those traders who use the Hilbert Sine Wave.

The Emini bounced up over 10 points today. This was right on cue after Friday's bullish divergence warning signal on the Better TRIN.

Hilbert Sine Wave: Expecting "End of Trend" Move (Emini 45 minute)

But I'm expecting a retracement tomorrow. The chart above shows the cyclical turn made on the Hilbert Sine Wave along with high volume churn.

The cyclical turn typically sets up a final down thrust that finishes off the down trend move. I call this a "completion" or "end of trend" pattern and it is quite reliable.

The high volume churn also shows that there is selling volume above 1,385 and the Emini is having trouble getting through. Lets see how tomorrow plays out.

Hilbert Sine Wave: US Dollar versus Japanese Yen (Daily)

If you trade the Emini it's worth also following what's happening in the Bond and Japanese Yen markets. A strong US Dollar in Japanese Yen terms shows that money is flowing into US investment markets and likely to drive prices up.

The chart above shows the US Dollar has been caught in a range between 102.5 and 105.5. We've now made a cyclical low turn and broken through a falling trend line.

If the US Dollar continues, this is bullish for the stock market and supports my medium term bullish outlook for the Emini.

Good luck with your Emini trading.

Emini closed up 48.50 points at 1,370.25 today. Wow, what a day. Trend days usually close on their highs and today was no exception.

Hilbert Sine Wave (Emini 699 tick)

Plenty of entry opportunities on pullbacks. I use the Hilbert Sine Wave to identify these, but any stochastic would work on days like this.

Where to from here? After a huge day like today the market will likely consolidate tomorrow. Probably cyclical activity rather than any strong trend moves.

There was some high volume (churn) at the end of the day and so we could see some profit taking until support is reached. The high volume will come back in once that support level is identified. Good luck with your Emini trading.

Hilbert sine wave reminder today. You'd have thought with a 400 point Dow rally that we were in an uptrend now. The chart below shows that rally just led to a pullback move in the unfinished downtrend.

Hilbert Sine Wave (Emini 81 minute)

Breaks into trend usually finish with a final cyclical turn. This is my usual "completion" pattern (labeled END using the Better Sine Wave indicator). And boy do I have trouble explaining this one – the best thing is to watch the Hilbert Sine Wave video. I hope the annotations on the chart above help.

The current down trend cannot be considered over until we have a cylical low cross. There are exceptions, but in general it is one of my most reliable patterns. I've likened it to a final Elliott 5th Wave push.

Emini Premium (June – March 2007)

The Emini rolled-over at the close of trade today. Tomorrow we start trading the next front month – June 2008 (ESM08). The chart above shows the usual premium between the front month and the nearby month. Last year at this time it was about 12 points.

Emini Premium (June – March 2008)

The current premium between the June 2008 contract and the March 2008 contract is only 2 points. This is very worrisome, especially when you combine this with the recent bearish professional position shown in the latest Commitment of Traders report.

I cannot help but think we are likely to test Monday's low of 1272 and then maybe test January's low of 1262. Let's see how this one plays out.

Watch the Hilbert Sine Wave video here. Good luck with your Emini trading.

Finally got around to updating my Emini day trading methodology page. The previous version was unclear because it was mixed up with commentary on my swing trading system. Please take a look – there's also a pdf version if you want to read it later.

Hilbert sine wave and 27 minute Emini chart below. The 27 minute chart is used because there are exactly 15 bars per trading day.

Hilbert Sine Wave (Emini 27 minutes)

From yesterday's post "still waiting for an 'end of trend' move in the 27 and 45 minute time frames (ie. final push down)" and Monday's post "any strong rallies will be sold again and we're likely to see more trading range activity".

Well today the rally back to 1,345 got sold and the Emini was pushed down to 1,320 – a previous area of support. I thought the Emini might have dropped further but it started to rally, even before the Hilbert sine wave crosses. In the after market we're already back up at 1,342.

Which way now? I think we will close the gap at 1,364 – eventually. But I don't think we've spent enough time basing. I can't believe the Professionals are going to let the Emini run away like that. I'm guessing we'll have another push down.

Good luck with your Emini trading.

Hilbert Sine Wave trend example today. Just a quick post to show how the Hilbert Sine Wave can be used to define the beginning and end of trends – any market, any time frame. This is Google (GOOG) on a daily chart.

Hilbert Sine Wave and Google (Daily chart)

For simplicity, I've just shown the support and resistance levels (red and white dotted lines) that are generated by the Better Sine Wave indicator. Trend moves occur when these levels are broken and follow through. The end of a trend move is typically signaled with a final cyclical turn.

On the chart above, the break into trend moves are signaled with a red or white dot – red for up trend, white for down trend. The end of the trend moves are signaled with the "END" text automatically printed on the chart.

In this Google example the up trend started with a break at $535 and continued until exhaustion at $714 – a 33% move up. You could have shorted from the end of the up trend at $714 or waited for confirmation of a down trend at $616. This down trend continued until exhaustion at $467 – a 24% move down from $616.

I get a lot of questions about the Hilbert Sine Wave – I don't think I'm very good at explaining how it works. I've tried my best in these Hilbert Sine Wave videos. All I know is, I couldn't trade without it.

Hope everyone shorted the Emini at the break below 1,375 highlighted in yesterday's post. Good luck with your Emini trading.

Hilbert Sine Wave has turned down on the 135 minute time frame – my preferred time frame for Emini swing trading. Is it time for a cycle down move?

Hilbert Sine Wave (Emini 135 minute)

Today was a very strange day on the Emini. The 1,340 level was tested during the overnight session and we made another run for the trend line break – as expected. The Emini broke above 1,365 but only made it as far as 1,370 before selling appeared.

What troubles me is that the TRIN indicator was very bullish, with an adjusted reading of +160, but both the volume and range were smaller than yesterday. Typically TRIN readings above +100 are large range, high volume up days – and that's what we need to break the down trend line convincingly.

All of this makes me think that we might not make the gap close at 1,378 and the 135 minute Hilbert Sine Wave down cycle will kick in. A break below 1,360 tomorrow would start to make this scenario more likely.

There are a couple of new Hilbert Sine Wave videos added here, if you're interested. Although the code is for sale I hope my readers also realize there's a lot of free code and trading information available on the site too. Good luck with your Emini trading.

Hilbert sine wave cycle turning point finally approaching. My primary swing trading time frame is the 135 minute Emini chart (exactly 3 bars per day). Back at the beginning of January, the Emini broke below the last cycle low turning point – signaling the start of the last down trend move.

Hilbert Sine Wave (Emini 135 minute)

The Hilbert sine wave indicator has now crossed – signaling a cycle top is close by. This pattern of retracing into a cyclical turning point after an extended trend move is very consistent. I have likened it to an Elliott Wave 4 to 5 pattern before. In addition we appear to have distribution volume today with resistance around the 1,370 level.

Good luck with your Emini trading.

I'm a big fan of John Ehlers Hilbert Sine Wave. The Emini chart below shows how the Sine Wave caught 4 short entries (5 if you count after hours) day trading today.

Emini and Hilbert Sine Wave (2,097 tick)

When using the Hilbert Sine Wave I've found that tick charts work best. By contrast, for volume patterns I've found that time based charts are better.

When day trading I use multiple time frames – 233 tick, 699 tick and 2,097 tick – and I include the after hours data in tick charts. The 233 starting point is chosen because it's a fibonacci number. Then each higher time frame is 3 times the lower time frame. So the 2,097 tick chart is 9 times (3 x 3) larger than the 233 tick starting point.

The usual multiple for moving from lower to higher time frames is 5. This was probably chosen because of the daily to weekly relationship; it's also close to the weekly to monthly relationship. However, in practice I've found that 3 times is faster at identifying significant events coinciding on multiple time frames.

The day trading entry points shown on the chart above coincide with turning points on the Hilbert Sine Wave shown on the lower pane. As you can see, when the trend is persistent the Hilbert Sine Wave does a great job of catching pullbacks in trend.

Emini Exhaustion Volume and TRIN Divergence

Today we got the exhaustion volume or volume climax that we were looking for yesterday. The Better Volume indicator colors the volume bars red when both the bar's range and volume are high, like today.

In addition, we also got a bullish divergence warning signal on the Better TRIN Indicator. The adjusted TRIN reading was -171 which is better than the -238 of a couple of day's ago, yet we made a lower low – setting up a bullish divergence warning signal. Conditions appear to be in place for a temporary halt to the decline.

Good luck with your Emini trading.