Premarket price action analysis
For tomorrow’s analysis, wait until after today’s close. Then, look at the bottom of this post for “Outlook for tomorrow’s Emini price action and day trading.”
If you want to see today’s premarket analysis, I posted it after yesterday’s close in yesterday’s blog at S&P500 Emini intraday market update.
S&P500 Emini intraday market update for price action day traders: Probable trading range
Posted 7:13 a.m.
The 5 minute chart of the Emini is extremely overbought and has formed a parabolic buy climax. However, there is still room up to the targets of the October 6 and 8 lower highs. When the trend is this strong, the first pullback will probably be bought.
After two days of extreme small pullback bull trend price action, the odds are that today will be at least somewhat two-sided, and it should have a leg down at some point lasting at least a couple of hours. The small pullback bull trend is a very tight channel. It should soon transition into a broader channel and then a trading range. Today probably will therefore be less bullish and more neutral. One way for the market to express more neutrality would be by creating a doji day on the daily chart. This means that the market would open around what would become the middle of the range, then trade up and down, and close near the open and the middle of the range.
When the market is two-sided, traders look to buy low, sell high, and scalp. If there is not strong selling pressure, traders will initially only sell with limit orders above bars. Once the selling pressure increases, they will be willing to sell below bars and on strong bear closes. If there is a strong breakout with follow-through in either direction, traders will swing for a measured move. So far, the bears have had consecutive strong bear trend bars twice today. This is enough selling pressure to expect a leg down lasting at least a couple of hours at some point today. Because the bull channel is so tight, today is unlikely to become a big bear trend day. Also, even if there is a strong selloff, bulls might come back at the end of the day.
Outlook for tomorrow’s Emini price action and day trading
The Emini was extremely overbought coming into today. Yesterday was a small pullback bull trend, and therefore a bear flag, and the odds were that the stock market would begin to have two sided trading today and break below the bull channel for at least 20 bars. The bulls tried to resume the trend up with a breakout above the triangle, but that triangle became the final flag of the bull trend.
Once there was a breakout below the moving average (highlighted in green), the bears were likely to be able to keep the market below the average for at least 10 bars. The breakout had strong follow-through and the day became a bear trend day.
Although the Emini tried to bottom, the bulls were unable to create a strong buy signal bar. They got an upside breakout at 11:45 and again at noon, but both had weak follow-through and that made a trading range more likely than a bull trend. The bears broke below the trading range and the Emini sold off into the end of the day.
The daily chart has been up strongly after a big selloff. Big down and then big up creates confusion, and confusion and disappointment are the hallmarks of a trading range. The market is likely to go sideways, with bulls buying selloffs and the bears selling rallies.
Eventually, there will be a breakout up or down. Because of what I have been saying about the weekly and monthly charts, I think that the odds favor a move below last week’s low and that the stock market probably will be down on the year. The stock market appears to be in a big trading range since the beginning of the year.
Because of today’s strong reversal, the stock market might gap down and form a two day island top on the daily chart. This does not mean much, given that the market is probably in a trading range. Remember, it formed an island bottom last week.
The 60 minute chart has been so strongly up for the past several days to make it likely that today’s selloff is just part of the formation of a trading range on the 60 minute chart. The market is also testing the October 8 lows again, which I mentioned today will probably be a fulcrum over the next few days with the market trading below and above it, and then deciding whether to test up to the October 8 lower high or down to last week’s low. I think it will fall below last week’s low, but it might have to test all of the way up to the all-time high first. If it gets there, the bears will try to create a double top.
See the weekly update for a discussion of the weekly chart.