The Emini opened with 4 consecutive bull bars and is always in long at the moment. The bears want a lower high major trend reversal. If the Emini goes above Friday’s all-time high, they want an expanding triangle top. The bulls want a trend from the first bar bull trend day and they will probably buy the first reversal down.
The bears need to generate some selling pressure before they will be willing to swing trade. However, if they create a strong reversal down with follow-through, they would then be willing to swing trade, even without a clear top. Until then, shorts are scalps, and longs are scalps or swings.
Even though the bulls have a strong open and the Emini is in a bull trend, the odds still favor that most of the trading today will be within small trading ranges.
My thoughts before the open
It looks like the Emini might open with a small gap down in a bull trend. Although last week was Christmas week and it was likely to be one of the quietest week of the year, and it was, this week will also probably have a lot of tight trading ranges and limited swing trading. However, sometimes there are big moves on New Year’s Eve and on the first trading days of the year so traders need to be prepared to trade them. It is easy to enter a state of denial and then get mad at yourself at the end of the day for missing great swing trades once you’ve printed out the chart.
Most traders will assume that the week will be a limit order market and they will either fade breakouts, betting that reversals will be more likely than successful breakouts. Some will sell above bars at the top of the range and buy below bars at the bottom and scale in. Others will look for a few reversals where there are good stop order entries, like one with a good signal bar and maybe a 2nd entry at the top or bottom of the range.
However, if there is a strong breakout with follow-through in either direction, traders will begin to swing trade part or all of their positions. The Emini is very overbought on the 60 minute chart and this increases the chances of a swing down on the 5 minute chart. It also increases the chances of a swing up because when the probability appears to favor one direction (a reversion the mean, like a pullback to the 60 minute moving average), it also increases the chances of a surprise swing trade in the opposite direction.
Summary of today’s price action and what to expect tomorrow
The Emini had a brief rally on the open and then entered a tight trading range for the rest of the day. Tomorrow and Wednesday will probably be mostly within tight trading ranges and they will probably have few good day trading opportunities, but traders should always be ready for a strong trend in either direction, even when the market is quiet.
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.