Wednesday 8 November 2006

Neutral 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.

Emini Trading Index TRIN Image

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.

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