The Emini is searching for a bottom and it probably will soon reverse up from a 60 minute wedge bull flag. However, there are still targets below and they may have to be reached before there will be a 60 minute rally. The Emini reversed up from below yesterday’s low and it had consecutive bull trend bars closing on their highs. It is always in long as I am writing. However, the bars are not big and the signal and entry bars on the open were weak. Yesterday had a lot of two sided trading.
The Emini is still making lower lows and highs and it is therefore still in a bear channel. The current rally is probably a bull leg in a trading range. The bulls need to rally above prior lower highs, like the top of yesterday’s trading range around 1996. This would convert the bear channel into a trading range. The bears want the series of lower highs to continue. Even if the market rallies for a day or two, it will probably then test down at least one more time before it will have a rally lasting for several days because there are still targets below.
The bears hope that it is a bear rally that will fail at the moving average and create an opening reversal down and the high of the day. Even if it does, this is late in the bear channel and the bear trend will probably not be strong and it will probably have a two hour rally at some point. For the bears to create a credible swing trade down, they need consecutive strong bear trend bars closing near their lows.
My thoughts before the open
The daily chart still has gaps at 1953.25 and 1893.50. Since the October 31 gap was so important, these gaps might be as well. We will probably bounce before reaching the bottom gap, if we reach it before reaching a new high.
Yesterday had a lot of two sided trading. Today gapped down and reversed up, which is consistent with that. Although there are targets below, the 5 minute chart could bounce before reaching those targets.
There are several trend channel lines between 1960 and 1970. These would form a 60 minute wedge bull flag, and one of them will likely lead to a 60 minute reversal. Remember, there is a gap at 1953.25, and there could be one final plunge below that gap before the bounce. The rally should last at least 10 bars and 2 legs. Since the sell off is also a climax on the daily chart, the rally might last about 10 days.
The bounce will probably coincide with a bounce in crude oil. I noticed that the February crude oil contract this morning was down 10 cents less than April. This is unusual and it might be a sign of a bounce soon. Also, USDNOK has been in a parabolic buy climax and it reversed overnight. Norway is a major oil country. Both of these things might be a sign that the sell climax in oil might end soon. Also, there are a couple of measured move targets in crude oil, one at 52.60 and the other at 50.0, and crude oil is almost there. Any bounce will take place at some support level.
Day trading outlook for tomorrow’s Emini price action
Although the Emini reversed up strongly from below yesterday’s low and broke above the 15 minute moving average (it has been resistance for 3 days), yesterday’s lower high, and the 60 minute moving average, it reversed down sharply from a parabolic wedge top and closed at a new low of the day. The selloff had two legs and it might therefore be another leg down within a 60 minute wedge bull flag. There are two possible trend channel lines below, as well as the October 28 gap on the daily chart at 1953.25. All are magnets.
Whenever the day ends with a sell climax, there is a 33% chance of a continuation of the trend down on the next day and a 67% chance of a reversal that lasts at least a couple of hours. That reversal sometimes follows an hour or two on initial selling. Tomorrow also is an 11 a.m. PST FOMC report, which will probably create a big move up, down, or in both directions. The 5 and 60 minute charts are oversold, and the weekly and monthly charts are overbought. There is no bottom yet on the 60 minute and 5 minute charts, but since the Emini is near the bottom of the 60 minute channel, it might reverse up sharply tomorrow, even before the report. The 60 minute and 5 minute charts are in bear trends, and bear trends usually have surprises on the downside. This means that they try to create credible bottoms, but the bottoms fail and the bear breakout is much larger than what seems likely. This is important to keep in mind when looking for a bottom tomorrow. Be prepared for the exact opposite…a strong swing trade down, if the bottom fails.
If the bulls do succeed and are able to reverse the Emini strongly above the September high, There will still probably be a 2nd leg down on the 60 minute chart, and the rally will probably form a 60 minute lower high major trend reversal.
Crude oil is trying to find a bottom in its sell climax, and today is the first day when the front month did better than the back months. The bulls need this to continue. However, even if it does, the rally will probably be a bear rally, and the crude oil bulls will probably need a major trend reversal before they can retrace much of the selloff.
I am mentioning crude oil because it is part of the reason why the stock market has sold off. If the economy needs less energy, it is probably not producing as much and therefore earnings will be less. However, the main reason for the selloff in the stock market is the overbought condition of the higher time frame charts. A bounce in crude oil might cause a bounce in the stock market, but the selloff in the stock market might be strong enough to have a 2nd leg down after any rally. Today’s reversal up was so unusually strong that it will probably have follow-through (more buying) at some point over the next several days.
Premarket price action analysis
See yesterday’s intraday market update report for today’s premarket analysis. Once there, scroll down to the heading, Day trading outlook for tomorrow’s Emini price action.
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.