Friday 5 September 2008

Emini Drops Through Support

In Wednesday's post I saw 2 things:

  • Cyclical lows on multiple time frames (weekly, daily, 135 min, 81 min, 45 min and 27 min)
  • Bullish divergence on TRIN

Well, as we all know, the Emini dropped almost 40 points on Thursday. My swing trade got stopped out and I felt pretty stupid.

But, for me, there are 2 lessons to be learned (re-learned really):

  1. When cyclical turning points appear on multiple time frames we get a clustering of support (or resistance) levels. In this case between 1,262 and 1,271. And here's the point - if this cluster of support levels gets broken there are no support levels to slow a drop and the market falls sharply. This recent post on multiple time frames made the same point.
  2. Bullish and bearish divergence patterns are only warning signals. I'm usually pretty careful about calling them "warning" signals but lapsed in Wednesday's post. Divergence can take a long time to be proved correct - trends always last longer than you expect. The pattern I like to see on divergence patterns, particularly momentum divergence, is repeated divergence then a final blow off move in the direction of the trend. The market can usually reverse after that.

Emini Support Image

Support Level and Capitulation Volume (Emini daily)

Not going to say much about the chart above. Sunday evening Globex trading is showing the Emini up 38 points at 1,278. Good luck with your Emini trading this week.


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