The Emini has been trying to bottom above the January low for the past 3 days, but it has failed. It is down 27 points now in the Globex session, which traded below the January low. The Globex session reversed up from just above 1800, and is 18 points above its low. The odds favored a bounce early this week, and then a break below the January low. The bounce was small, and the Emini is now testing the low. Since the 60-minute chart is so oversold, it might now find its bounce at or slightly below the January low. With the 60-minute and daily charts so oversold, the Emini might instead rally after testing the January low, instead of rallying first and then breaking strongly below. The February rally on the daily chart might be the Final Flag in the February selloff. If so, the 1st reasonable target for the bulls is the top of the bear flag at the February 1940 high, which was a 50% pullback of the January selloff. The result would create both a double bottom and a double top on the daily chart, and the Emini would be back to breakout mode. At the moment, the probability favors the bears, but if the Emini gets back to the bear flag, the probability would once again be about 50% for the bulls and the bears.
The bulls need a strong reversal up, and it can occur early or late on the daily chart. The strong reversal up can begin with a one or two day strong rally starting today or tomorrow. Alternatively, there can be a weak rally that lasts for a week or two and looks like a bear flag. The bulls can then get a strong bull breakout above bear flag.
With the Emini being so oversold, the odds that the bears will get their strong breakout below the January low over the next few days is lower, and the odds of a bounce are greater than 50%. If there is no strong breakout within the next 2 – 3 days, the odds shift in favor of a rally off the January lows. If the rally is weak, it would create a bear flag, which would have about a 50% chance of a bull or bear breakout. If it is strong, the rally would probably continue up to around the February high. Day traders should be ready for a surprising strong move up over the next few days. They obviously are prepared for a strong move down, but the less obvious possibility is a rally, and that creates a possible pain trade up, which could be much bigger than traders expect.