Monday 27 November 2006

Downward Break

Sharp downward break today after a very quiet Thanksgiving Holiday week. The Emini closed down 19.50 points at 1,383.50 on Monday. Finally got the break we were looking for. Hope everybody was short and made good profits today. Smart Money indicator discussed below.

Emini Smart Money Index Image

The Emini opened down 1.25 points at 1,401.75.  Almost immediately the market traded down heavily, there were no pullbacks and the market reached an eventual low of 1,382.75. The Emini then closed on the lows at 1,383.50.  Range for the day was 20.0 points, almost double the daily average, and volume was very high at 1.6 million contracts traded.

All my trend oscillators have now turned down and what we are seeing is a down move (4th wave) that will set up the final (5th wave) up leg during December.  The chart above shows my version of the Smart Money indicator - I call it my Secret Weapon No. 3.  I haven't shown this indicator since the middle of October. As you can see it started to turn down mid last week and added to the mounting evidence of the end of this last uptrend.

Smooth Smart Money indicator

Just a recap, this indicator measures professional activity by comparing the last hour’s trade with the rest of the day.  As we’ve said before, the professionals or “smart money” trade later in the day, while non-professionals are more active at the open.  The beauty of this indicator is that it leads the market and the turns, indicating trend change, are very smooth with little whipsaw action.

What next?

The Emini closed on the lows and buying volume was not very convincing at the end of the day.  There is likely to be some consolidation after this large range day, but I don't believe a final low was put in today.  We’ll have to see how tomorrow pans out and if we get a further downside move before a significant retracement.

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