Trading Index (TRIN) Divergence
The Emini closed up 3.00 points at 1,462.00 on Tuesday. Although the Emini started the day down and falling, it eventually found support at 1,452.25 and bounced on higher volume and ended the day up - a typical "bear trap" day. However, beware the low Emini volume of the last 3 days and a Trading Index (TRIN) divergence pattern shown on the chart below.
The adjusted Trading Index (TRIN) reading today was 58 and a new high was made. However, last Thursday the adjusted TRIN reading was 162, giving us a bearish divergence pattern. This pattern is highlighted on the chart above with rising prices and falling TRIN readings (red trend lines). A similar pattern occurred at the beginning of January 2007.
My use of the Trading Index (TRIN) data is somewhat unconventional. You can read about the simple mathematical adjustments I make to the raw data that make it much easier to interpret Trading Index here.
We've now had a nice bounce in the market over the last week from the low of 1,435 made last Tuesday up to yesterday. I have to admit that I was surprised how quickly the market turned last week. It would not be surprising to see some professional profit taking coming in, as non-professionals get sucked back in on new highs.
Note: Starting today, I will be sending out full text articles, rather than summaries, as an experiment. I hope you like this change. Also apologies for not posting more frequently over the last two weeks - I was having too much fun snowboarding in Japan.
Exhaustion Day
The Emini closed up 7.75 points at 1,451.00 on Thursday. My mate, Rob, laughed at me today and said "You're always too early. When will you learn?" He's right of course. So rather than me make excuses I'll just show you 4 charts. Check them out below and make your own conclusions.
Trading Index (TRIN) divergence on the chart below with the Emini up but adjusted Trading Index (TRIN) negative. Divergence shown by white dot on daily bar.
Trading Index (TRIN) oscillator turns down from highs on the chart below. Turning points shown by white dot on daily bar.
Cyclic turning point in 135 minute bars on the chart below. John Ehlers Hilbert Sine Wave shown below intra-day bars.
NASDAQ weaker than Dow in last 3 days on chart below. Bar chart below daily bars shows percentage difference between NASDAQ and Dow when the Dow has a larger move than the Dow.
Another TRIN Exhaustion Signal
The Emini closed down 0.25 points at 1,438.50 on Wednesday. Another exhaustion signal with Trading Index (TRIN) divergence - negative adjusted TRIN but close greater than open. See the chart below. Was today a trap up move?
White dot = Bearish TRIN Divergence; Red dot = Bullish TRIN Divergence
Trend and exhaustion summary
Summary of current trend oscillators - bearish:
- Trading Index (TRIN) oscillator turned down
- Open Close oscillator (Secret #2) oscillator turned down
- Hilbert Sinewave oscillator overbought at +97 and about to cross
- Smart Money oscillator overbought at +54 but not turned yet
Summary of current exhaustion indicators - bearish:
- Trading Index (TRIN) divergence today (see chart above)
- No Demand (low volume) pattern yesterday
- High Volume Churn pattern yesterday
- NASDAQ vs Dow divergence yesterday and today
The only fly in the ointment was the buying at the end of today. Could see some follow through tomorrow morning but I'm waiting for a high volume break below support at 1,435.
Trading Index (TRIN) Pop
The Emini closed up 4.00 points at 1,424.50 on Wednesday. Trading Index (TRIN) pop today - but is that all the Emini could manage? We didn't even break yesterday's high. Maybe that's being harsh - the Emini rallied almost non-stop from open to close on above average range and volume. Check out the adjusted Trading Index chart below.
Spike on Trading Index
The adjusted Trading Index (TRIN) reading was +137 and confirmed today's buying. However, the Emini had to work hard all day from an open that was 5.25 points below yesterday's close to close at the day's highs. We're now stuck in a range between 1,412 on the low side and 1,425 on the high side.
I expect we'll grind higher tomorrow but we did end the day with a lot of churning volume. If we slide from tomorrow's open this was profit taking at the close; if we continue to advance this was professionals steadily absorbing the selling volume.
Expecting holiday strength
Apple did continue it's advance today and the NASDAQ and Semiconductors are performing more strongly. However, it did seem like hard work. The Emini typically rallies into holidays and we have the Martin Luther King long weekend coming up and no day session trading on Monday.
If we continue slowly higher over the next couple of days, at some point we may spark a short covering rally. Short stops could be sitting around 1,432 and this would give the professionals an opportunity to cascade prices higher, take profits and reverse positions. We'll have to wait and see.
Friday 5 January 2007Trend Change Day Monday?
The Emini closed down 11.00 points at 1,416.50 on Friday. Once in a while my views on the direction of the market differ widely from most of the commentaries I try not to read. That was the case again after the close on Friday and over the weekend. First post of the New Year and 3 charts to review.
Friday's market action first
The Emini opened down 3.50 points at 1424.00 on Friday. The market immediately started to sink but by lunchtime had put in a high volume bar with a low of 1414.25 and then traded sideways for the rest of the day. The Emini eventually closed at 1416.50. Range for the day was average at 10.00 points and volume just above average at 1.1 million contracts traded.
Trading Index (TRIN) divergence
The first chart shows Trading Index (TRIN) market divergence. I adjust Trading Index data so it's easier to interpret and the indicator is shown below the daily bar charts of the Emini. When the adjusted Trading Index is positive but the market closes down, this is positive divergence and shown by red dots on the daily bars. Vice versa for negative divergence and white dots on daily bars. This shows that although Friday was a down close day the volume traded was buying volume.
Stopping volume pattern
The second chart shows my stopping volume pattern. If the market makes a new low on higher volume than the previous day but the daily range was LESS than the previous day, this shows buying volume is coming into the market and preventing it falling further. Conversely if the market makes new highs on higher volume but smaller range this shows selling volume coming in. The pattern is shown on the chart automatically and plotted below the daily bars when bullish and above the daily bars when bearish (I love what you can do with TradeStation Easy Language).
Trend Line support
The third chart shows trend lines automatically plotted on the daily Emini bars. As you can see we recently broke a trend line connecting the last 2 pivot points (strength 4). However, Friday's low was almost exactly on the previous rising trend line that is formed from the low points on 11 October, 3 November and 28 November.
Summary
The charts above illustrate 3 reasons to be bullish about the Emini market, but they're not the only ones. In addition we have:
- Lower oil prices
- NASDAQ performing stronger than the Dow
- Large volume spike on Dow with little follow through to downside (buying volume)
- My trend indicators in the buy zone, but not strongly over-sold
- Cycle support on daily and 135 minute time frames
- Bearish media commentaries
On the bullish side we have weak bond market, seasonality and Commitment of Traders data. (Note: Release of latest Commitment of Traders data delayed from Friday to Monday.)
Thursday 9 November 2006Trading Index (TRIN) Caution
Trading Index caution for Friday. The Emini closed down 7.5 points at 1,384 on Thursday. We got the expected break following the last two days of profit-taking. However, the Trading Index (TRIN) formed a divergence pattern today and we need to be cautious on Friday.
Selling started almost immediately today on the Emini. The open at 1,392.50 was 1 point above yesterday’s close. We quickly made a high and then sank swiftly all day, hitting a low of 1,381.25. The Emini bounced towards the end of the day to finally close at 1,384. Range for the day was 12.5 points and volume just above average.
The professional profit-taking we had seen over the last couple of days finally led to a strong down day. 1,395 is now a major overhead resistance level for the Emini going forward. However, there was not out-and-out panic selling today.
But a positive Trading Index (TRIN) on the Emini
Check out the Emini chart above, which shows my adjusted Trading Index. Today’s reading was +34, while the market closed below the open. Divergence patterns like these are shown with red and white dots - red dots are bullish, white dots are bearish. Although the signals don’t always work out (check out the signal at the end of October) they are more reliable when considered with other non-correlated indicators
My 3 trend oscillators are still positive:
- Trading Index (TRIN) oscillator
- My Secret #2 oscillator, based on the open and close prices
- My Secret #3 oscillator, based on Smart Money.
Normally, if we were at the beginning of a downtrend, one of these indicators might have turned down by now. They are all in overbought territory but yet to show the first sign of weakness. Altogether, I would trade very cautiously on Friday, maybe expect a bounce and review the situation after tomorrow’s Emini market action.
NASDAQ and Dow volume
On a final note, the volume traded on the NASDAQ and Dow indices were both very high today. Typically high readings like these on down days are not necessarily bearish - we’ll have to wait and see whether this was “real selling”.
Wednesday 8 November 2006Neutral Trading Index (TRIN)
More profit taking today. The Emini closed up 2.5 points at 1,391.50 on Wednesday. Everything looked pretty good today but check out the excessive volume and neutral Trading Index (TRIN) reading and you might think otherwise.
Professional selling yesterday and weak overseas markets depressed the Emini overnight. We opened down 6.5 points and below yesterday's low. The Emini immediately rallied after the open, touched yesterday's low and continued upwards — a classic Larry Williams Oops pattern. The high reached was 1,393.25, barely above yesterday's high, making the total range for today 13 points. More importantly, volume was also well above average at 1.4 million contracts traded.
All the commentary today was about a record Dow, strong stock market, etc. I don't see it that way. Yesterday was a classic profit taking day with the professionals selling out on a below average range day. Today the volume traded was very high and the market only just managed to match yesterday's high. Professionals, the smart money, typically sell on up days and high volume like this at the top of an advance is not a good sign.
Neutral Trading Index (TRIN) reading
Of particular note was the neutral Trading Index (TRIN) reading. The chart above shows Emini daily bars with my adjusted Trading Index indicator below. Check out previous articles to see how I calculate the adjusted index. Today's reading was just 4 (zero is neutral). If the reading had been negative then it would have signaled a Trading Index (TRIN) divergence pattern. These divergences are shown with white and red dots on the Emini daily bars.
However, the intermediate trend is still intact. We have had two days of profit-taking but no signal of a change in trend. For this we’d have to see a break below 1,370 or a blow-off exhaustion pattern.
Monday 23 October 2006Trend Continuation
Trend continuation today. The Emini closed up 5.75 points at 1,380.75 on Monday. The Trading Index (TRIN) oscillator signal we got on Friday worked out well today. Want to know more about this useful indicator?
Don’t fight the Emini trend
The Emini opened down 3.5 points at 1,371.50 and dropped briefly to 1,370.00. It then spent the rest of the day rallying, reaching a high of 1,384.50 and eventually closed at 1,380.75. Range ways high at 14.5 points and volume was above average at 1.2 million contracts.
Trend continuation today as this market powered still higher. We ended last week with a mixed bag of signals - some bullish, some bearish. But the lesson here is “don’t fight the trend” and “the trend always lasts longer than you think it will”. I'm sure at some point this market will top out and reverse but obviously today was not the day.
Crazy Emini spike overnight
Lot of talk this morning about the spike in the Emini overnight. You can't see it on a daily chart, but after the weekly open late Sunday afternoon the Emini spiked up from 1,375 to 1,398 on low volume. Obviously there were a series of stops in Globex above 1,380 that got triggered in a cascading pattern - all the way up to 1,398. Ouch!
Trading Index oscillator ahead of the pack
In previous posts I’ve talked a lot about how I use the Trading Index (TRIN) data. The chart above shows a useful TRIN oscillator that has been catching swings in this market over the last two or three months quite accurately. As usual, red dots are bullish and white dots are bearish.
Last Thursday all my trend indicators dropped into the buy zone and then this Trading Index oscillator gave a long signal on Friday. Well today, the other trend oscillators have turned and followed the Trading Index up.
Check the Trading Index (TRIN) topic on the right to find out more or do a Google search for Emini and volume spike.
Thursday 19 October 2006Trading Index Divergence
Trading Index (TRIN) divergence today. The Emini closed up 1.75 points at 1,374.25 on Thursday. Another exhaustion signal today - that makes three in the last two days. But is this exhaustion confirming the trend indicators?
Dow, Dow, Dow …
The Emini opened 2 points below yesterday's close, fell 1.5 points then rallied slowly all day to hit a high of 1,375.50 and eventually closed near the highs at 1,374.25. At 6.5 points the range was rather narrow and volume was average at about 1 million contracts.
The big news today was the Dow closing above 12,000. Couldn't stop hearing about it all day - everywhere I turned there was a report about the Dow making record highs and closing above this “psychologically very important” level. All the while, the NASDAQ remained weak and in particular the Semiconductor Index (SOX), which leads even the NASDAQ, was weaker still. If you're a professional trying to organize “distribution” and exit your long positions at market highs, I don't think you could have done better than today.
Emini exhaustion mounts
So what are our exhaustion indicators now saying. The chart above shows the Emini with daily bars and the adjusted Trading Index (TRIN). I've talked before about the adjustments that I make, briefly they are:
- Average the NYSE and NASDAQ data
- Take the log of this average index, and
- Invert the resulting log index.
Divergence patterns are shown when the market closes up but the adjusted Trading Index is negative and vice versa. These divergences are shown on the Emini chart with white and red dots. White dots are bearish and red dots bullish.
So today we had the third exhaustion signal in two days. On Wednesday we had Dow and NASDAQ divergence and a Larry Williams Oops pattern. Today we had Trading Index (TRIN) divergence. The only thing missing is very low volume, showing a lack of participation in a continued rally.
But Emini trend not being followed
How about the trend indicators - what are they saying? Three of my four trend indicators all started pointing down last week:
- Trading Index (TRIN) oscillator
- My Secret No. 2 indicator that analyses open and closing prices, and
- My Secret No. 3 indicator that measures the “smart money”.
These trend indicators have all continued to weaken slowly and have now entered the buy zone, although they are not at very low levels yet.
Watch these critical trend line support levels
All-in-all a bit of a mixed picture. I would have expected the market to have started falling by now given the trend indicators. There is critical support at 1,370 and any close below 1,365 would be bearish.
Do a Google search for Trading Index (TRIN) or Emini to find out more information.
Monday 16 October 2006Trading Index (TRIN) Turns
Trading Index (TRIN) weakness today. The Emini edged up 2.5 points to 1,376.00 on Monday. However, the Trading Index oscillator turned and volume shrank. This is another sign of weakness following Friday's turn down in the Smart Money indicator. Do you know how to use the Trading Index (TRIN) data?
First let’s look at Emini volume and inter-market divergence
There are a couple of notable points to make about the Emini market today. Volume has now shrunk to very low levels, which is a pattern we frequently see when a market tops out. Last Wednesday's volume was 1.3 million contracts, 1.0 million on Thursday, 0.8 million on Friday and now 0.7 million today, Monday. Along with this fall in volume, the daily range has also contracted significantly.
The NASDAQ is also very close to highs made back in April 2006. Today the NASDAQ closed at 2368 and the high made twice in April was 2375. I don't usually use support and resistance levels made so far apart as indicators for trading, however, I find this incident noteworthy. The Dow is making record highs, the S&P has overtaken its high made back in April, but the NASDAQ has failed to do so. This is a bearish sign with professional investors pushing blue-chip stocks rather than growth stocks.
Trading Index (TRIN) data needs manipulation before giving us answers
I have written before on the Trading Index and how to use it to find turning points in the Emini. Just to recap, I make 3 adjustments to the raw data to make it easier to use:
- Average the NYSE and NASDAQ data
- Take the log of this average index, and
- Invert the resulting log index.
You can build a useful oscillator by cumulating this data and then measuring the distance from a moving average. This oscillator is shown in the chart above plotted beneath daily bars of the Emini. Turns in this oscillator are shown with white and red dots on these daily bars. White dots are bearish and red dots are bullish. As you can see, today the market advanced but the Trading Index oscillator turned down from a very high reading - a bearish signal.
This is one of my favorite indicators but beware
Looking back on the Emini chart you can see how well this single indicator identifies swings in the market. Don't use this indicator alone though, combine it with other non-correlated market indicators to identify high probability market turning points.
Do a Google search for Trading Index (TRIN) and Emini to get more information.
Get Free Email Updates
Reader Comments
Emini Trading Tutorials
- A Better TRIN Indicator
- Better Volume Indicator - My Secret to Analyzing Volume
- "Big Money is in Big Moves" - Trading with Trend Lines
- Bond Market Analysis
- Commitment of Traders & Following the Professionals
- Emini Futures - The Facts
- Hilbert Sine Wave - Don't Trade Cycles Without It !
- Stopping Volume Pattern
- Trading with the Better TRIN Indicators
Emini Trading by Topic
- Bond Market (11)
- Commitment of Traders (74)
- Cycle Analysis (6)
- Doji Candlestick (5)
- Elliott Wave (1)
- Emini Swing Trading (3)
- Hilbert Sine Wave (20)
- John Ehlers (11)
- Larry Williams (6)
- Multiple Time Frames (8)
- Nasdaq & Dow Jones (6)
- Put Call Ratio (6)
- Smart Money Index (10)
- Support & Resistance (5)
- Trading Book Reviews (1)
- Trading Psychology (3)
- Trend Lines (22)
- TRIN Indicator (41)
- Volume Indicator (22)
- Volume Patterns (28)
| M | T | W | T | F | S | S |
|---|---|---|---|---|---|---|
| « Oct | ||||||
| 1 | 2 | |||||
| 3 | 4 | 5 | 6 | 7 | 8 | 9 |
| 10 | 11 | 12 | 13 | 14 | 15 | 16 |
| 17 | 18 | 19 | 20 | 21 | 22 | 23 |
| 24 | 25 | 26 | 27 | 28 | 29 | 30 |
