Island bottom and possible island top below all time high
Pre-Open Market Analysis
The Emini sold off on Friday and closed the gap above Wednesday’s high. A gap down today would therefore create a 2 day island top. It does not matter that last week’s gap up is higher. Island tops and bottoms often have gaps at different levels.
The bulls see the gap closure as simple a test of support at the bottom of last week’s gap up and at the 60 minute moving average. While closing the gap weakens the bull case, the odds still favor a test up.
Lower high major trend reversal
When Friday traded below Thursday’s low, it triggered a lower high major trend reversal on the daily chart. Yet, Thursday was a weak sell signal bar and Friday was a disappointing entry bar. Also, Friday was the 1st break below a 9 day bull micro channel. The odds therefore are that the bears will need a 2nd entry short or a big bear bar before traders will believe that the trend is down.
As a result of the strong reversal up over the past 2 weeks, traders will probably buy this selloff, betting that it is a bull flag. The odd are that the reversal up last week will lead to a test of the all-time high,
Overnight Emini Globex session
Overnight, the Emini continued its pullback from Thursday’s rally. While it is still above Thursday’s low, the pullback has been in a tight channel and therefore represents strong bears. Big up Thursday, Big Down since then means Big Confusion, and confusion is a hallmark of a trading range.
The Emini has been mostly sideways for the past 6 hours after last night’s sell climax. Since it is now testing the top of the September 15 – 21 triangle, the odds are against a strong selloff. Because the selloff was in a tight channel, the odds are against a strong rally today. Furthermore, the uncertainty of tonight’s debate also increases the chances of trading range price action today.
While a trend day can come at any time, a trading range day is more likely today. Yet, most of the trading range days over the past couple of months have have swing trades up and down.