Th Emini has hit the August 17 top of the bear trend for each of the past 6 days, but has been unable to break above it. It has been in a tight trading range, giving day traders a chance to learn how to trade quiet price action. The more bars that get added to the range, the more the rally of 2 weeks ago loses its influence and the more neutral the Emini becomes. The momentum up was strong enough so that the odds are that the Emini will reach the next resistance level of the November high. There is a 50% chance that it will get above that and test the July all-time high. However, there is only a 40% chance that a breakout to a new all-time high will reach 100 points without first having a TBTL Ten Bar Two Leg correction on the monthly chart (about a year), which remains overbought.
The bears see the rally over the past month on the daily chart as a sell signal. It is a lower high, and they are shorting, knowing that there is a 40% chance of a lower high major trend reversal that will lead to a swing down before going above their stop, which is above the November or all-time high. Many bears are waiting to see a strong downside breakout before shorting. At that point, the probability of a swing down on the daily chart would be higher. Traders learning how to trade the markets need to know that anything good for them means that is bad for the other side, and the other side has to get something in return. Bears who wait for a breakout pay for the high probability with a reduced risk/reward (their stop would be farther away). The math is good for shorting now or after the breakout. The math is also good for the bulls buying now or after the breakout. However, the management of either a long or short swing trade is difficult when the Emini is in a tight trading range. Because of that, most bears and bulls who trade the markets for a living continue to scalp (take fast money trades lasting hours to days), waiting for a clear breakout before swing trading.
The Emini is currently up about 6 points in the Globex session, but still below the August 17 bear trend high of 2091.25. Day traders today expect more trading range price action. This means that the odds are that there will be a swing up lasting 2 – 3 hours and a swing down lasting 2 – 3 hours. Traders do not know which will come first. Yesterday, the swing down came first. Even though there were many strong bear trend bars in that selloff, I repeated said in the chat room that the selloff looked more like a bear leg in a trading room than one in a bear trend. This was due to the absence of consecutive big bear trend bars closing on the lows, and the ability of bulls to make repeatedly make profitable scalps with limit orders and scaling in. Traders will watch the initial 2-hour swing up or down to see if both bulls and bears can repeatedly make profitable scalps. If only one side is easily making money, traders will be much more inclined to only trade in that direction and to swing trade, knowing that this type of price action is more common in trend days.
The Emini might be waiting for Friday’s unemployment report before it decides on the direction of its breakout. However, it can breakout at any time in the absence of any news. Until it does, day traders will trade it like a trading range. They will look to buy low, sell high, and scalp, and many will use limit orders, buying below bars in the lower half, selling above bars in the upper half, scaling in, and scalping. This is hard for most traders to do and they should instead look for one or two 4 point swings.