I posted this Emini chart after the close. The stock market today remained in a trading range until 10:40 am PST when it had a very big bear breakout bar. Day traders who were watching were able to sell as the bar formed. When a bar is that big, the odds of more selling are high. The day had a higher low major trend reversal at 12:15, but it followed 5 bear bars. The result was that the market could not rally strongly and the day became trending trading range day.
Posted 7:49 am PST.
The most important price action in today’s intraday update is the opening reversal up from just above yesterday’s low. On the daily chart, yesterday is a low 1 sell signal bar for the bears. They will short 1 tick below its low for a breakout pullback short, hoping for a second leg down on the daily chart. The bulls will try to prevent that short from triggering. Today, they created an opening reversal up from just above the bottom of yesterday’s bull channel, which began with the 8:50 am bar yesterday.
However, the leg up was weak and it therefore probably become part of trading range. It was strong enough, though, to make a bear trend day unlikely at the moment. A trading range day is likely, so day traders will buy low, sell high, both will scalp, and many will scale in. The bulls hope to get above yesterday’s high, but they probably will fail, just like the bears failed to get below yesterday’s low.
Yesterday was a buy climax so the probability was that today would be a trading range day, but that there would be a bear leg lasting a couple of hours or testing yesterday’s low. The 60 minute bear flag is fairly vertical, and therefore the Emini will probably have to go sideways for more bars on the 60 minute chart before starting a second leg down. Since yesterday’s range was big, if today becomes a trading range day, the legs will probably be big enough to try for 2 to 4 points early on. Today might become an inside day.
If there is a strong breakout up or down, the day can convert into a trend day, just like yesterday did after 10:30 am. However, it is more likely to remain a trading range day. Traders should not be eager to buy strong bull breakouts or sell strong bear breakouts when they occur on second legs because these will more likely become traps. It is better to wait for follow-through or to enter on a pullback when trading breakouts late in trading range legs because most will fail and reverse.
See the weekly update for a discussion of the weekly chart.
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.
