The Emini gapped below the bull channel, but it opened just above the 60 minute moving average and within yesterday’s 5 hour trading range. This gap down triggered the 60 minute higher high major trend reversal, and the 5 minute chart is likely to go sideways to down for at least a couple of hours after a 2 day broad channel. However, traders need either a strong setup or a breakout before they will be willing to swing trade. If there is swing today, it will more likely be a short since a bear trend day is more likely than a bull trend day after a failed breakout to a new all-time high and a bear breakout below a bull trend channel.
Until there is a breakout up or down, most traders will be mostly scalping. Many will only buy if there is a very strong bull breakout with follow-through because the odds favor at least a couple of hours so sideways to down trading. They will be more willing to short, expecting more down. However, they will wait for either a strong bear breakout or for a rally to a lower high major trend reversal before they will swing trade.
Here are my thoughts before the open. The Emini will probably open with bear breakout below the bull trend channel of the past 2 days. The Emini has sold off from every new high over the past couple of weeks, at least briefly, and it did so today in the premarket. The rally of the past 2 days followed a 60 minute gap bar and yesterday tested the high of the trend. This is a setup for a 60 minute major trend reversal, which might trigger today.
With the 60 minute channel being as tight as it is, the Emini might have to go sideways for several hours before there is enough selling pressure to convince traders that a plausible 60 minute top is in. However, if there is simply a strong 60 minute bear breakout, that will be just as convincing.
The 5 minute chart has been in a bull channel for about 200 bars, which is a long time. This increases the chances of a bear breakout below the channel and the transition into a trading range. Today will probably gap below the channel, and the Emini might trade down in at least a couple of legs and a couple of hours to relieve this 3 day overbought situation. Less likely, the channel up will continue today. The odds favor a bear trend or a trading range for at least the first 2 hours today.
Day trading outlook for tomorrow’s Emini price action
The Emini then had a strong reversal up to a new high of the day and a new all-time high. However, it has found sellers at new all-time highs over the past few weeks, and it did again today.
It had consecutive buy climaxes and formed a parabolic wedge top. This led to a tight trading range, which acted as a lower high major trend reversal. The selloff was brief and the Emini reversed up sharply to around the open of the day. The day became a doji day.
Tomorrow has an unemployment report before the open and it will probably result in a gap up or down. Since tomorrow is a Friday, weekly support and resistance will be magnets. This week and last week were small so the open, high, and low of both weeks are nearby.
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.