Monday 11 December 2006

Wound Up with Cycle Low

The Emini closed up 4.50 points at 1,426.75 on Monday. Total range over the last 5 days has been less than 16 points and the Emini is wound up and ready to break. Continued strength all Monday after some initial profit taking. So which way are we going to break?

Emini Cycle Image

The Emini opened up 0.25 points at 1,422.50, made a quick low of 1,421.50 then raced ahead in the first hour on large volume to hit a high of 1,429.25. The rest of the day was spent profit taking but the Emini stayed strong and closed at 1,426.75. Range for the day was below average at 7.75 points and volume was below average at 0.8 million contracts traded.

The market has consolidated over the last 5 days and today's close was just above the mid-point of this 16 point range. Large volume was traded during the first hour as professionals took advantage of over-eager non-professionals by taking profits. However, this was not followed by widespread selling - in fact, the Emini stayed surprisingly strong with small volume and low range bars. We're now set up for a break and a large range day - no doubt everyone is waiting for the Fed announcement on Tuesday afternoon to determine the direction.

Cycle low using 135 minute bars

The picture above is a 135 minute chart of the Emini. I use 45, 81 and 135 minute charts intra-day as they break the trading day into equal parts. The trading day lasts 405 minutes which is 3 x 135 minutes, 5 x 81 minutes or 9 x 45 minutes. The indicator at the bottom of the chart is John Ehler's Hilbert Sinewave - a cycle indicator.

This indicator has done a good job of signaling cycle lows during the market uptrend. Since 8 August there have been 9 crosses of this indicator and every one has resulted in a profitable trade. However, as the trend reaches exhaustion the likelihood that these signals will be successful diminishes. That will also be a good sign that the Emini uptrend has come to an end. In the meantime, just follow the trading signals and keep a tight stop.

Click the image below to read all about John Ehlers latest book.

Cybernetic Analysis (Wiley Trading)

Filed Under John Ehlers

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