The Emini reversed up from below yesterday’s low, but it did not yet break out above yesterday’s trading range. Until it does, the bears see the rally as a bull leg in broad bear channel. At the moment, it is always in long, but this is not helpful when the range is this tight and most traders will wait for the breakout up or down.
The Emini is in breakout mode at the bottom of a trading range. Traders will scalp until there is a breakout with follow-through up or down. The potential for a 60 minute breakout and strong trend is high, but the breakout probably will not happen today because there is not enough momentum. However, there have been many strong trends up and down over the past few weeks so traders need to be prepared for a swing trade if the character of the market changes from trading range price action to breakout price action.
My thoughts before the open: Breakout mode, testing support
The Emini keeps having small breakouts below prior lows, but continues to hold above the December low. This is not how successful breakouts typically behave. The result will probably be either a rally to a price level where bears will again be comfortable shorting aggressively, or a gap down after the upcoming three day weekend. That could become a measuring gap and lead to a test of the October low.
As long as the bulls are able to wear the bears down at the bottom of the range and above the December low, there is no breakout and the probability is that the Emini will bounce. However, unless the reversal up is extremely strong, like in mid-December, the rally will probably be just a bull leg in the 3 month trading range, which has had many bull and bear legs. The Emini would then remain in breakout mode, awaiting a breakout and measured move in either direction. Because the monthly chart is so overbought, I think the odds of a successful bull breakout and measured move up are less than those of a measured move down, even though the Emini is in a strong bull trend on the monthly chart.
The Emini has been in a tight bear channel for a week, and the trend line above is resistance. It is just above the support of the January and December lows. Today could continue sideways more. However, a bear channel is a bull flag, so the odds are that it will try to break above the bear channel today. Also, it is sitting on support, and this also makes a bounce likely today.
Today is Friday and the closest weekly magnet is last week’s low of 1984.25. The next support is the December low of 1963. Even if the Emini breaks below support, if there is no strong follow-through, bulls will buy a reversal up. The nearest resistance is the weekly moving average around 2005.
Summary of today’s price action and what to expect tomorrow
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.