Tuesday 14 November 2006

Volume Exhaustion

Volume exhaustion today. The Emini closed up 9.75 points at 1,397.75 on Tuesday. Extraordinary day! After yesterday's post we were long and made excellent gains; hope you did too. The mixed signals of yesterday have now resolved themselves and give a clearer direction. Very important post - please read on.

Emini Volume Exhaustion Image

The Emini opened up 3.25 points at 1,391.25. The market immediately sunk to a low of 1,383.00, the low end of our trading range identified over the last few days. The Emini then took off in dramatic fashion. It broke the top of our trading range, reached a high of 1,399.25 and eventually closed at 1,397.75. Range was huge at 16.25 points and volume at 1.5 million contracts the largest since the low of 19 July. The chart above shows this extended up move since July. Check out the volume in the histogram below the daily bars.

Volume exhaustion and going against the crowd

These volume and range signals are extremely important and mark exhaustion or a blow off move. The volume climax on 19 July marked the beginning of this extended uptrend. I believe the volume climax we saw today marks the beginning of the end to this uptrend. Don't expect the Emini to collapse straight away, but the next swing will be down. There will probably be a final fifth leg to this rally into December, set up by this next down swing.

Commentary about the market was universally bullish wherever you went today. Be very cautious going forward. We may well see a gap up overnight and open above today's high of 1,399.25. In this case, it will set up a classic Larry William's Oops pattern.

Trend oscillator update

Three of four trend oscillators have now turned down - the Trading Index (TRIN) oscillator is still pointing up. However, the TRIN reading was rather anaemic today given the size of the move. Remember, these are leading indicators and so don't expect the market to start moving down straight away.

Click here to watch a video tutorial and download free code for the Better Volume Indicator. Good luck with your Emini trading.

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