Posted 6:53 a.m.
Today gapped below the trading range and reversed up from the bull trend line. However, it did not yet reach the 60 minute moving average and it has not yet broken above yesterday’s trading range. Both of these increase the chances of a test down today. If the bulls can break strongly above yesterday’s trading range, today could become a bull trend day. More likely, it will be mostly a trading range day and it will test the 60 minute moving average.
Most days over the past few weeks have had tight trading ranges in the first hour. The bad follow-through after the strong bull bar of the 2nd bar of the day is consistent with that. Yesterday ended with a 3 hour trading range, which increases the chances of a trading range initially today.
Until there is a strong breakout in either direction, traders will expect that yesterday’s buy climax will evolve into a 60 minute trading range. This means that any legs up or down on the 5 minute chart will be legs within a trading range and traders will look for quick profits.
At the moment, the bulls are struggling to get back into yesterday’s trading range and above the moving average. If they fail, this attempt can lead to an opening reversal down for a test of the 60 minute moving average. Unless the bulls break strongly above yesterday’s trading range, traders will look for this rally to fail and for the market to reverse down to support. This is more likely at the moment.
My thoughts before the open: Buy climax and trend exhaustion
The 60 minute chart has a buy climax and trend exhaustion, and it should test down to its moving average and to the bottom of the channel today or tomorrow. Other targets below are the December high of 2088.87 and last week’s gap of 2069.75, but that is probably too far to be reached today. Less likely, the overbought bull trend can continue and then have the pullback later this week or even next week. Strong bull trends are usually followed by trading ranges and not bear trends, so if there is a a selloff, it will probably be a bear leg in a trading range and not a bear trend.
Summary of today’s price action and what to expect tomorrow
The Emini was in a trading range day. It reversed up from a test of the December high.
The Emini has been above the 60 minute moving average for 4 days and had a 14 bar bull microchannel on the 60 minute chart. That is a buy climax when it forms late in a trend. Although the market tried to test the 60 minute moving average several times today, the bulls kept buying and prevented the test. The market kept stalling at the top of the range because the bulls do not want to buy too high until after the Emini actually touches the 60 minute moving average and reverses up. That touch will probably come tomorrow or Friday simply because the Emini has been above it for 30 bars, and that is unusually long.
If the bulls are able to get a strong breakout tomorrow without first touching the 60 minute moving average, that breakout will probably be a buy climax and it will probably fail and lead to at least 10 bars down on the 60 minute chart. Less likely, it will lead to a new leg up.
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.
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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.
