Posted 7:16 a.m.
There was a gap up but weak rally in the Emini. The bears triggered a small wedge top for a swing sell. The daily chart has been in a trading range for at least 6 months. In a trading range, when there are two resistance levels that are close to one another, the market often goes above one, but not the other, and then turns down. This might happen today.
The Emini is waiting for a strong setup or breakout in either direction. The location is good for the bears, but the Emini might instead break strongly to the upside. Until there is a strong breakout up or down, the Emini is still always in long, but the rally is weak and probably will become part of a trading range. However, since the Emini is testing important resistance, there might be a breakout and then a trend in either direction. The three day long trading range increases the chance that there will mostly trading range price action today.
The bulls want the Emini to break strongly above the October 8 and 6 highs and then reach a new high. From the new high, the bears would look for a topping pattern, and the bulls would want to trap the bears with a strong bull breakout and create a measured move up.
The bears prefer that the stock market does not get above the October 6 and 8 highs, and instead form a lower high and then continue down in a bear channel. If the Emini does go above the September all-time high, they expect to be able to turn it back down. The new high would be after the weekly moving average gap bar (the high of 2 weeks ago was below the moving average, which is a sign of strong selling), which is usually followed by a major trend reversal. The daily chart would also have a possible expanding triangle top.
Day trading outlook for tomorrow’s Emini price action
The Emini gapped up and then entered a trading range for the first half of the day. It then broke above the October 6 high, pulled back, and rallied strongly into the close.
The Emini gapped up, but then went sideways for 4 hours. It had a 1 tick breakout above the October 6 high, but despite the possible failed breakout, it failed to reverse down. After a small two legged pullback (an ABC or high 2 bull flag), it broke strongly to the upside and became a small pullback bull trend for the rest of the day.
Since the stock market ended in a parabolic buy climax, the odds favor about two hours of a pullback beginning in the first couple of hours tomorrow. However, there might be follow-through buying for the first hour.
Tomorrow is an FOMC report day. The Emini will probably have a big move after the 11 a.m. PST report. The move can be up, down, or both. The September high is the all-time high and it is 30 points higher, but that is within reach because an FOMC report sometimes results in a very big move.
If the Emini goes above the September high, October will be another outside month. The candle closes on Friday, the last day of the month. The bulls not only want the high to be above the September high. They also want the close to be above the September high. However, when an outside up bar occurs late in a trend, it is more likely to be an exhaustion gap than a measuring gap. I will talk more about the monthly chart this weekend.
Premarket price action analysis
See yesterday’s intraday market update report for today’s premarket analysis. Once there, scroll down to the heading, Day trading outlook for tomorrow’s Emini price action.
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.
Traders can see the end of the day bar-by-bar price action report by signing up for free at BrooksPriceAction.com. I talk about the detailed Emini price action real-time throughout the day in the BrooksPriceAction.com trading room, and a 2 day free trial is available.
When I mention time, it is USA Pacific Standard Time (the Emini day session opens at 6:30 am PST, and closes at 1:15 pm PST). You can read background information on the intraday market reports on the Intraday Market Update page.
I think that it is the current fad, like market profile was 20 years ago, and so many others that eventually get discarded once everyone discovers that it cannot make sense. Just think about it….if there was such an easy edge, every comp algorithm would be all over it and there would be no one left to take the other side. There are no perfect ideas, and successful trading always has to be difficult because all of the players are very, very good. Anything that sounds easy cannot work, especially in heavily computerized mkts like the Emini.
Hi Al, the topic “tape reading” or simply in layman’s terms “reading order flows” has been a hot topic in the trading world, especially for scalpers. I personally believe price action gives us a true reflection on the market strength, since order flows can be manipulated by highly skilled execution traders and algorithms. What is your opinion in this topic?