Posted 7:12 a.m.
The Emini opened within yesterday’s trading range and the trading range price action continued. It is in breakout mode in an extremely overbought market, and this will lead to either trend resumption or trend reversal.
Day traders are waiting for a strong breakout up or down, with consecutive strong trend bars. Until then, they will either scalp or wait. Once there is a strong breakout, they will swing trade, looking for at least a second leg.
The first 3 bars today were bear bars, and the Emini opened with a failed breakout above yesterday’s high. However, it initially stayed within yesterday’s 5 hour trading range.
Because of that bull microchannel on the daily chart, the odds favor a pullback lasting about 10 bars and it should begin soon, possibly today. The context is good for the bears because all time frames are so overbought. The first target for the bears is the October 30 gap at 1994.
However, there is no clear top yet and there is a weekly trend line above. The market might have to reach it before any pullback begins.
Day trading outlook for tomorrow’s Emini price action
The Emini traded around yesterday’s high repeatedly. It was a quiet trading range day that closed near its high.
The Emini is continuing up on all time-frames, even though it is overbought on every timeframe. There is no top yet. The top of the weekly channel is just below 2050 and the Emini might have to break above it before it begins a pullback.
The bull trend has resumed up on the daily chart after last week’s 1 day pullback. Although trend resumption after a climactic microchannel usually only lasts for a few days, that is not absolute. The odds favored ten bars and two legs sideways to down, but the Emini has now gone up for 5 days instead. This might mean that the bull microchannel is more of a sign of strength and less of a sign on an exhaustive buy climax. However, the small bars and dojis in the 6 day rally since that pullback are still more consistent with a bull leg in a trading range than a strong breakout above the September high. This means that the odds favor a pullback on the daily chart soon.
In the absence of a top or a clear bear breakout, traders should assume that the rally will last forever, knowing that one day they will be wrong. However, they will make more money continuing to look to buy than repeatedly shorting and getting stopped out with small losses.
Buying late in an overbought bull trend is like a game of musical chairs. When the music stops, everyone rushes to get a seat. When there finally is a bear reversal, the Emini could fall quickly for several days as all of the recent buyers rush to get out without a loss. All of the bulls who have bought over the past few days know that the market is overbought. They will exit quickly on the first sign of a top because they will try to get at least a small profit on their late entry in an overbought bull trend.
This can result in a big bear breakout bar on the daily chart. If one forms, there will probably be at least two legs down because many bulls will not look to exit until there is a strong bear breakout. Once they see one, they then look to get out with a small loss on the first reversal up. Their selling and the unwillingness of other bulls to buy after they see a strong bear breakout in a bull climax usually results in at least two legs down. Bears also short that rally, betting on the second leg down.
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.
