Posted 7:08 a.m.
The Emini triggered a nested 60 minute wedge short on the open, but the selloff had small bars with tails. This was more likely a bear leg in a trading range than in a bear trend. Today will probably have an early trading range, like almost every day for 3 weeks has had in the first hour. Traders will then wait for a strong breakout up or down, with follow-through, before swing trading. Until then, they will mostly scalp and many will enter with limit orders, betting that breakouts will fail.
Although today will probably close below the open, a trading range day with a bear close is more likely than a bear trend day. A bull trend day is possible, but unlikely, given how overbought the daily chart is and given that the 60 minute chart has several wedge tops.
Because today will probably close below the open, the open will be a magnet in the final hour. If the Emini is below the open, the bulls will try to get a rally. If it is above the open, the bears will try for a selloff.
At the moment, the Emini is still probably always in long because it is still above the bottom of yesterday’s midday rally and the bears today have not done enough enough to demonstrate that they are in control.
My thoughts before the open: Buy climax on the daily candle chart
Yesterday was the 10th consecutive bull body on the daily chart. This happens only once every several years and is therefore unsustainable and climactic. The chance of today having a close below the open is probably 70% or more. This can happen with a doji day or with a bear trend day. Ten consecutive bull days is a sign of strength, which means that the first bear body will probably be small, and therefore the result of a trading range day. The chance of a big bull trend day is small, especially after Friday’s big buy climax day.
Summary of today’s price action and what to expect tomorrow: 2nd leg down from a wedge top
The Emini reversed down from a 60 minute wedge top to a new low of the day, and closed below the open of the day for the 1st time in 11 days.
The Emini had a weak rally to a new all-time high, but reversed down strongly after a buy climax. Since the reversal triggered a 60 minute wedge top, there will probably be at least 2 legs down on the 60 minute chart. The 2nd leg down will probably come tomorrow.
Since the Emini is so overbought and at an all-time high, there is always the possibility that this selloff today is the start of a bigger correction. The odds are that it will go sideways on the daily and weekly charts for a few weeks rather than down, but there is about a 60% chance of a 20% correction this year and any reversal down from an all-time high can be the start. However, there have been many attempts and all have failed, which means that the odds of a trend reversal are small, as always, but very real.
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.
Hi Al,
Will there be a new course about collaring and more options trading focus in the near future?
I am working on expanded options videos, as well as other things, but it will be months before I complete the project. I think most traders should not collar up (sell a covered call and use the premium to buy a put for protection). I a trader is a serious stock trader, then sometimes it makes sense, but in general, the math is not worth it.
Hey Al,
what exactly was the reason for you to think that the bull BO at 10:30 today was not enough of a surprise, to get at least a little more up (to speak in your words)? Was it the strong resistance at that price and the likelihood of a bear close today?
I thought surprise moves would make the other side give up for a while, possibly TBTL, and form a second leg in the direction of the BO.
Thanks in advance,
Paul
My thought was that there would probably be at least a small 2nd push because of the small pullback bull trend, but whenever the best pair of bull trend bars occurs late in a trend and the trend looks like a bull leg in a TR, I am very hesitant to buy unless I see strong follow-through. The choice is between a measuring gap and an exhaustion gap, and the EG is more common, esp. when the rally looks so weak. I talked about in the room about those next few bars, which showed that the buy the close bulls were in trouble.