The Emini opened with a big gap down. Big up yesterday, big down today means big confusion and increases the chances of a trading range. The second and fourth bars were bear bars. This is bad follow-through after the strong bull bars, and that increases the chances of a trading range. Yesterday was a bull channel, which usually evolves into a trading range. Today opened in the middle of yesterday’s range, and this increases the chances of a sideways market. Even though the Emini is always in long, the odds favor today having a lot of trading range price action. Traders will be inclined to scalp, but if there is a strong breakout with follow-through, they will convert to swing trading.
My thoughts before the open: Buy climax yesterday so pullback today
There was a buy climax yesterday so a pullback today is likely, and it will probably have at least 2 legs and last at least 2 hours. I am writing almost an hour before the open and the situation can be very different once the Emini opens. However, it looks like it will gap down, and that alone can replace the 2 hours and 2 legs down.
The key thing today is that it is the last trading day of the month, and the bears are trying to have the month close on its low. If so, they will have a good sell signal bar for next month in a very overbought monthly chart that is likely to correct 20% at some point this year. The bulls always want the opposite, and they would like a strong rally today. That would put a big tail on the bottom of this month’s candle and make it a less reliable sell signal bar.
Because it looks like the Emini will open in the middle of yesterday’s range and yesterday was a bull channel day and therefore likely to be followed by a trading range, today will probably have a lot of trading range trading. However, since the range was so big yesterday, today will also probably have one or more swing trades.
Summary of today’s price action and what to expect tomorrow
The Emini rallied midday, but it failed and the market closed on its low, below the weekly moving average and last week’s low. This is the last trading day of the month and the month now is a bear sell signal bar. There is a chance of a gap down on Monday.
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.