The Emini’s daily chart as a 2-legged, 7-bar correction that is testing the middle of the April Final Flag. Although the past 2 days were strongly bearish on the 5-minute chart, they had small bear bodies and prominent tails below on the daily chart. They look more like bars in a bull flag than in a new bear trend.
After the April 20 new all-time high, the Emini never quite got back to the July high. If the Emini is putting in a major top, it would be unusual for it to do so without touching that resistance at least one more time. This means that the odds favor at least one more test up. It sometimes takes 20 or more bars to get there, but the odds are that it will.
The weekly chart had a bear breakout below an 11 bar bull micro channel. The odds are that the strong bulls who created the micro channel will buy this 1st pullback and that there will be at least a 2 – 3 week move up to and probably above last week’s high before the bears will be able to create a trading range. There is still about a 30% chance of a strong breakout above the 2-year trading range and a measured move up.
The Emini has been mostly sideways for over a month, and most days has had swings up and down This means that there has been a lot of trading range trading on the 5-minute chart. Until this pattern clearly ends, the odds are that it will continue.
The bear breakout last week on the 60-minute chart was strong enough to make at least one more test down likely. However, it still formed a higher low and there was a 2nd entry buy on Friday (a double bottom on the 5-minute chart). In trading ranges, probabilities stay mostly in the 45 – 55% range. Nothing ever seems as certain as traders want. The most certain thing is that the trading range price action will continue. This means that both bulls and bears are confident that moves up and down will not go too far before reversing. Traders tend to be faster to take profits. They look to buy low and sell high. Their behavior perpetuates the trading range trading.
Since both a swing up and a swing down are likely, traders will look for both buy and sell setups, and for strong reversals. They will also be careful of possible 2nd leg traps. There will often be a leg, a pullback, and then an even stronger 2nd leg. If the context was good for a trend, traders would bet that the 2nd leg would form a measuring gap and be followed by at least one more leg up. Since trading range psychology is dominant, these strong 2nd legs often fail. The breakout reverses and then the process repeats in the opposite direction.
Online day traders have to be careful about buying strong bull breakouts or selling strong bear breakouts because if enough institutions do the opposite, it will be easy to buy the top and sell the bottom, and lose a lot of money. Only look to buy a strong breakout if the context is good. It is better if it is a reversal (a 1st leg). If there is an immediate reversal bar after a 2nd leg breakout, be quick to get out.