Friday 15 December 2006

Volume Distribution Day

The Emini closed unchanged at 1,438.25 on Friday. Opening gap up and distribution day today, particularly on the NASDAQ index. Expect weakness on Monday and we'll have to see how far this goes. Discussion of volume churn, bonds, oil and Trading Index (TRIN) today.

Distribution NASDAQ image

The Emini gapped up 3.50 points on the open at 1,441.75. The market then continued to crawl slowly higher eventually reaching a high of 1,444.25 at 10am. The market then retreated steadily all day, reaching a low of 1,437.50 and eventually closed unchanged at 1,438.25. Range was low at only 6.75 points and volume just below average at 0.9 million contracts traded.

Classic Larry Williams Oops pattern today. Gap open up, then fell through yesterday's high of 1,440.00, which would have been the short entry point, then continued lower. The usual exit would be a bailout - first profitable open - so Monday's open, assuming it's below the entry point of 1,4400.00. The pattern takes advantage of over-anxious non-professionals trying to enter too late in the trend. This patterns work out particularly well when the market is over-extended.

NASDAQ distribution at highs

The daily chart above is of the NASDAQ index, which closed at 2,457. Not quite a reversal bar on Friday, which would have required the close to be below yesterday's close, but it doesn't look healthy! I swear that looks like a double top. And the NASDAQ and Semiconductor indices have both been under-performing the Dow. Typically these move up first in a new uptrend and then at tops they are weaker than the Dow.

Of more interest is the histogram plotted below the daily bars. This is "churn" or volume divided by range. As you can see it was the highest since mid October. I color the bars red when they are at the highest level in the last 20 days. No particular significance of 20 days - just a typical cycle length for the Emini.

High churn in mid-October and mid-November both led to declines. And now we have high churn in mid-December. There's that 4 week period of 20 trading days - like I said, just a typical stock market cycle length.

Bonds, Oil and Trading Index

Other confirming indicators:

  • Bonds got slammed down on Friday after jumping up as response to CPI
  • My Trading Index (TRIN) oscillator, that measures momentum, is overbought
  • Oil prices making higher lows - $57 in November, $60 at beginning of this week, now at $63

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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