Thursday 9 November 2006

Trading Index (TRIN) Caution

Trading Index caution for Friday. The Emini closed down 7.5 points at 1,384 on Thursday. We got the expected break following the last two days of profit-taking. However, the Trading Index (TRIN) formed a divergence pattern today and we need to be cautious on Friday.

Emini Trading Index Image

Selling started almost immediately today on the Emini. The open at 1,392.50 was 1 point above yesterday’s close. We quickly made a high and then sank swiftly all day, hitting a low of 1,381.25. The Emini bounced towards the end of the day to finally close at 1,384. Range for the day was 12.5 points and volume just above average.

The professional profit-taking we had seen over the last couple of days finally led to a strong down day. 1,395 is now a major overhead resistance level for the Emini going forward. However, there was not out-and-out panic selling today.

But a positive Trading Index (TRIN) on the Emini

Check out the Emini chart above, which shows my adjusted Trading Index. Today’s reading was +34, while the market closed below the open. Divergence patterns like these are shown with red and white dots - red dots are bullish, white dots are bearish. Although the signals don’t always work out (check out the signal at the end of October) they are more reliable when considered with other non-correlated indicators

My 3 trend oscillators are still positive:

Trading Index (TRIN) oscillator
My Secret #2 oscillator, based on the open and close prices
My Secret #3 oscillator, based on Smart Money.

Normally, if we were at the beginning of a downtrend, one of these indicators might have turned down by now. They are all in overbought territory but yet to show the first sign of weakness. Altogether, I would trade very cautiously on Friday, maybe expect a bounce and review the situation after tomorrow’s Emini market action.

NASDAQ and Dow volume

On a final note, the volume traded on the NASDAQ and Dow indices were both very high today. Typically high readings like these on down days are not necessarily bearish - we’ll have to wait and see whether this was “real selling”.

Emini trading articles filed under TRIN Indicator :