Posted 7:05 a.m.
Yesterday ended with consecutive buy climaxes above a bull channel, and today opened with a big bear reversal bar that was far above the moving average and the top of the channel. This was a reasonable short for a test down to the bottom of the channel, but with yesterday’s rally being as strong as it was, the Emini might go sideways instead. Starting with the last two bars of yesterday, the Emini is alternating bull and bear bars.
This is trading range behavior and it means that whatever selloff the market creates will probably become a bear leg within a trading range. The bulls are hoping to rally the Emini to a new high, but even if they do, the odds favor sellers above, and then a selloff lasting at least a couple of hours Less likely, the strong bull trend will continue for most of the day, and yesterday’s rally could become a spike and today’s rally could then be the channel after that spike. Yesterday broke out above a channel. This converts the market back into breakout mode. It much more often evolves into a trading range. However, traders need to be open to the possibility that today could also be a strong bull trend day from early on, even though this is less likely.
As I am writing, the bulls are having a breakout of the initial bull flag and the Emini is always in long. However, there has been a lot of trading range price action since the last 2 bars of yesterday, and this increases the chances that the first 6 bars could become a final flag. The bulls are hoping for a move to a new all-time high above 2072, and a bull trend day, but the odds still favor a swing down at some point starting within the first 2 hours.
My thoughts before the open
This rally might create a double top on the daily candle chart, but it is so strong that it might breakout above the all-time high and have a new leg up. Yesterday ended with a big buy climax. There was some follow-through buying overnight that led to a new all-time high, but the Emini reversed back to yesterday’s close. There might be more this morning, and it could last a couple of hours, but there is a 70% chance of at least a 2 hour swing down at some point this morning, and it usually starts within the first 2 hours. As strong as yesterday and Wednesday were, they are both extreme, and now the 5 and 60 minute charts are overbought.
Although the Emini could easily get much more overbought and quickly move to a new all-time high, there is always an element of a buy vacuum test of resistance. In this case, there is a possible double top with the December 5 all-time high. This could cause the Emini to stall up here as it decides whether this is a double top or a breakout.
Summary of today’s price action and what to expect tomorrow
Please see the weekend update.
I leave early today and will not post an updated chart after the close. The Emini is at the apex of a triangle and there is a 50% chance of the breakout going either way and being successful, and a 50% chance of a reversal. The bears see this as a lower high major trend reversal, and the bulls see it as a bull flag.
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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.
