The Emini reversed up strongly last week. It formed an outside up bar on the weekly chart, which that closed above the high of the prior week. However, the Emini is still below the November high, which was the top of a strong bull swing, and below the all-time high of 2117.00. Both resistance levels are within about 30 points, which is close enough for the Emini to break out any time within the next week or two. This week will give day traders a chance to learn how to trade a breakout attempt.
If the bulls get their breakout, their ultimate target is a 350 point measured move up, based on the height of the yearlong trading range. The odds of a significant breakout of 100 points or more will be greater if the breakout comes in the form of a series of 2 – 5 consecutive bull bars closing near their highs, especially if most of the bars have big bodies. If the breakout is made of small bull bars, or strong bull bars where each is followed by a bear bar, the odds are that the breakout will not go far before the Emini reverses back down into the trading range.
The bears prefer that any rally this week stays below the November high. They would see this as a sign that they were strong enough to stop the bulls from reaching a small goal that strong bulls should have been able to reach. The lower high, even though it would look like just the top of a leg in a trading range, might be the start of a broad bear channel, which is a bear trend. Some bear trends begin as big, broad trading ranges that have 3 or more strong rallies, and each fails to get above the top of the prior rally. Eventually the bulls conclude that there are too many strong sellers at this price, and they bulls stop buying. They then only want to buy a much lower price. The absence of buying can create a strong bear reversal that can break below the bottom of the trading range.
Just like the bulls want a 350 point measured move above the yearlong trading range, the bears want a 350 point measured move below. This would be around 1500. At a minimum, they would like a strong breakout below the October 2014 and October 2015 double bottom and at least a 100 point selloff to below the monthly bull trend line.
The Emini bulls were strong last week, but Thursday and Friday were small doji days. This is a sign of exhaustion. The bulls will again try this week to get above the all-time high. There are 5 trading days left this month and the month is a big doji bar so far on the monthly chart. November is the follow-through bar after October’s strong bull bar, and the bulls want a bull body. The bulls will try to make next Monday close above the open of the month to create the bull body. This would be a sign of strength.The bears want a bear body. They prefer the month to close on its low. That is unlikely, since the low is 70 points below the current price.
The 60 minute chart has had 3 pushes up over the past 2 weeks. This is a potential wedge top. Instead of reversing down for a couple of legs, Friday went sideways. This increases the chances of another leg up today or tomorrow. The rally could easily get above the all-time high, creating a breakout above the yearlong trading range.
The Globex chart had a 10 point selloff and then an 8 point rally overnight. Neither move was strong. This is trading range price action, and it follows 2 trading range days. The Globex chart is currently unchanged from Friday’s close. Friday ended with a reversal up out of a bear channel. This was the start of a bull breakout above a bull flag. The breakout was not strong. The bulls need a stronger breakout. Without it, the trading range will continue. If it does, and if the bulls continue to break above the all-time high, bulls will begin to exit and look to buy lower. Bears will look for topping patterns or strong bear breakouts within the trading range and they will short.
The 1st target for the bears is around last week’s low. If the Emini tests down to that level, it will have formed both month-long a double top and a double bottom on the daily chart, which would then be in breakout mode, just as the weekly and monthly charts are in breakout mode.
Day traders this week will continue to be quick to take profits until there is a clear bull breakout or bear reversal. The swings up and down on the 5-minute chart have been big enough for swing traders to hold positions for 4 or more points. Scalpers have done very well, especially with limit orders, betting that every breakout up and down will continue to fail. Since the Emini is at an important price level and at the end of the year, those who trade the markets for a living will be prepared for a possible big move up or down. Traders learning how to trade should be prepared for the breakout so that they will not be in denial when it happens. They should trade a small enough position to compensate for the wide stop and uncertainty. This will give them a better chance of profiting from the breakout, which can last a long time.