Posted 7:15 a.m.
The Emini opened with a strong opening reversal up from the 60 minute moving average. However, as expected in a trading range, the follow-through was bad and the market reversed down from its breakout above yesterday’s high. Even though the second bar of the day was a huge bull reversal, this bad follow-through increases the chances that this will be a leg in a trading range, and it reduces the chances of a strong bull trend day.
At the moment, the Emini is always in long, but the follow-through from the reversal up has been bad and the market is in a tight trading range. Exceptionally big bars often lead to trends and measured moves, and the move can be up or down. Traders are waiting for a strong breakout in either direction with follow-through before swing trading. The bears want the failed breakout above yesterday’s high and the bulls want a successful breakout, but the Emini has not yet had follow-through buying and therefore the bears still have a chance.
My thoughts before the open: Breakout mode
Yesterday’s entry bar on the daily chart for the breakout of the bull flag was disappointing. This is trading range price action. The range for the past 3 weeks is tight and the Emini is poised for a breakout in either direction. Although it is unlikely to breakout today or on any particular day, it is likely to breakout soon, and traders need to be prepared to swing trade once a strong breakout with follow-through develops.
Yesterday was a bull channel and therefore a bear flag, and the Emini will probably have a bear breakout in the first third of today. At the moment, the Emini is trading below the bottom of the channel. Channels usually evolve into trading ranges, and a weak opening today will probably signal the beginning of a trading range for the first third of the day.
Summary of today’s price action and what to expect tomorrow
The Emini had an early big reversal up from the 60 minute moving average, and that controlled the price action for the rest of the day. The rally ended at a measured move based on the height of the body. There was then a lower high major trend reversal that led to a leg down. This midday selloff formed a wedge bull flag and led to a modest rally into the close.
After reversing up strongly from the 60 minute moving average on the open, the Emini had trading range price action all day. Traders were able to make money selling above every high and scaling in higher and buying below every low and scaling in lower. The Emini is in tight trading range and it is in breakout mode. The monthly chart currently has an ioi breakout mode setup and the market might stay sideways for the rest of the month.
The 60 minute rally of the past 5 days is forming a wedge bear flag. The bears want a bear breakout and the bulls want a bull breakout. The rally of the past 3 days is strong enough so that the Emini might have to go a little higher before the bears can create a bear breakout attempt. However, it is not strong enough for traders to believe that it will go much higher. Traders are waiting for a breakout in either direction, and that is why I refer to this as breakout mode. Until there is a strong breakout with follow-through, both the bulls and bears will take quick profits, doubting that any move will get very far.
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.
