Posted 7:52 am PST.
The most important price action in today’s intraday update is the tight trading range open after yesterday’s (Friday’s) pause in the bear breakout. The first 5, 15, and 60 minute bars were all trading range bars and they formed within yesterday’s range. Yesterday was a trading range day. The Emini and stock market have a trading range opening range and the context supports the day becoming a trading range day.
The Emini just tested yesterday’s close and the bears want a breakout down to yesterday’s low. The bulls want a reversal up from yesterday’s close, forming a large high 2 buy for a test above yesterday’s 11:20 am high. If instead the Emini tests yesterday’s low, the bulls will look for a reversal up there. So far, the selling pressure is greater, and this increases the chances of a deeper test down toward yesterday’s low, but a trading range day ultimately is most likely.
There might be a breakout up or down and then a measured move, but today will probably mostly be a trading range day. Traders will look to buy low, sell high, and scalp. If there is a strong breakout, traders will trade in that direction for a second leg. If the strong breakout forms as a second leg, it probably will fail, instead of being followed by a third leg. Traders will see strong second legs as traps and will look for reversals.
If there is a very strong breakout up or down with follow-through, the stock market’s price action will have changed into a trend, and traders will trade it as a trend. At the moment, a trading range day or a trending trading range day mostly within yesterday’s range are most likely.
Friday was a big doji and therefore a pause in the bear breakout. It increases the chances that today will also be a trading range bar on the daily chart and that it will mostly overlap Friday. The bulls should create a 30 – 40 point bounce soon, as I described in the weekly update yesterday. The Emini might enter a tight trading range on the 60 minute chart as well, but a second leg down is likely after any pause or rally.
See the weekly update for a discussion of the weekly chart.