Today is the next to the last full day of trading of 2014. The Emini gapped below yesterday’s low, which is the neckline for the double top of the past two days. It reversed up, but the reversal was weak, as expected in holiday trading. The Emini then reversed down after the small pullback above yesterday’s low.
Although the bear breakout had follow-through, the bars had prominent tails. This increases the chances that the selloff will be a bear leg in what will become a trading range, and less likely a bear trend.
At the moment, the Emini is always in short, but this is not behaving like a bear trend. The selloff is lacking big bear bars closing on their lows. This increases the chances that the Emini might reverse up and form a low of the day, after 2 attempts to break below yesterday’s low. However, until there is a strong bull reversal, traders will sell rallies, betting that the Emini will work lower.
This is the first test of the 60 minute moving average in 7 days and therefore a 60 minute 20 gap bar buy. However, the 60 minute chart could take several bars before the bulls are able to create a rally attempt. This setup is not very helpful to day traders who are trading the 5 minute chart until there is a strong reversal up on the 5 minute. Knowing that it is a 60 minute buy setup will give them more confidence in the rally, if one develops.
The bears are hoping that the breakout below the 60 minute moving average will lead to a trend down, especially since there is a 5 minute double top. However, since trading range price action is likely and the Emini is already far below the top of the 2 day range, the odds favor a move up, especially since there is a 60 minute buy signal.
Most traders expect to take few trades today and that the trades will be scalps. However, if there is a strong breakout with follow-through in either direction, they will swing trade at least part of their positions.
My thoughts before the open
The Emini will gap down and this will trigger the double top trend reversal over the past two days. A measured move down is around 2073. However, until there is a breakout with follow-through, most traders will scalp. If there is a strong breakout, they will swing trade at least part of their positions. This is the last full day of trading of the year.
Although it will probably be mostly within a tight trading range, traders have to be ready for a surprise. A big trend day can happen at any time, even though it is unlikely during the holidays.
Summary of today’s price action and what to expect tomorrow
As expected, holiday trading continued, with the Emini in tight trading ranges for most of the day. There were several triangles, and there was weak follow-through after every breakout by the bulls and the bears.
Today ended with a double bottom, and yesterday’s high is the all-time high. Tomorrow might make an attempt to get above that high so that the Emini could close the year at a new all-time high. Both the bulls and bears are aware of it, so traders have to assume that the exact opposite might also happen…there could be a big sell-off, especially at the end of the day, and it can occur even if the day is mostly in tight trading range, as was the case 5 years ago on New Year’s Eve.
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.