Thursday 14 December 2006

Hilbert Sine Wave 10 Out Of 10

The Emini closed up 11.75 points at 1,438.25 on Thursday. Explosive up move today and profitable cycle trade from Monday - that makes it 10 out of 10 and 132 points since 8 August. Follow up to Monday's post below.

Cycle Indicator Image

The Emini opened down 0.50 points at 1,426.00, barely made a low at 1,425.75 then exploded out of the blocks. Huge first 45 minutes on very large volume - the most volume we've since in a 45 minute period since the beginning of this rally in June. For the rest of the day the market continued to edge up, reaching a high of 1,440.00 and eventually closing near the highs at 1,438.25. Range for the day was well above average at 14.25 points and so was volume traded.

Cycle indicator follow up

The chart above is a 135 minute chart of the Emini (day session only) - the same one used for Monday's post. I've squeezed up the bars a bit to show data since the end of July. Below the bars is the John Ehlers Hilbert Sinewave - an adaptive cycle indicator. Cycle lows are indicated with the red line crossing above the cyan line and vice versa for cycle highs. These crossing points are also indicated on the 135 minute bars with red and white dotted lines. TradeStation automatically draws a red dotted line at the cycle lows and a white dotted line at cycle highs.

On Monday we had a cycle low crossing and today we had a cycle high crossing. Entering on the first open after the up crossing (1,426.75) and exiting on the first open after the down crossing (1,436.75) would have netted 10.0 points profit. You would have had to take some heat during the trade - about 10 points worth - but it would have resulted in a profitable trade.

In fact, since 8 August there have now been 10 profitable trades in a row - total profits 132.25 points using the first open after the crossing points for entry and exit. An average profit per trade of over 13 points. Not bad stats considering the total up move since August has been 143 points (1,295 to 1,438). Each of these trades is shown on the chart above - enter at the red dotted line and then exit at the white dotted line. This isn't the holy grail but just shows the power of this cycle indicator.

Distribution under way?

The high volume and range today gave the professionals a great opportunity to take profits. This is a perfect overbought level to see the start of the Wave 4 correction mentioned yesterday. Look for signs of distribution over the next couple of days.

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