The Emini fell below the 60-minute bull trend line and below Friday’s low. If there is follow-through selling today, then the bear trend on the daily chart is probably resuming. More likely, the trading range will grow. In a trading range, the market usually falls below support, but then reverses up. If there is a bounce today or tomorrow, it would increase the chances that yesterday’s selloff was just a vacuum test of support within a trading range. Trading ranges have inertia and are resistant to change. This means that the probability of the trading range growing is greater than the probability of the bear trend.
The Emini is up about 5 points with less than an hour to go before the open of the day session. Yesterday was a bear wedge. The odds are that there will be 2 legs up. The wedge lasted about 4 bars. The odds are that the 2 legs up will last at least 20 bars. The 1st leg up began at the end of the day. The bulls will buy an early selloff, betting on at least one more leg up.
Bulls on the 60-minute chart see that yesterday’s selloff held above Friday’s higher low, and it might be forming a higher low in the bull channel that began on January 20. The bears need to push the Emini below higher lows to convince traders that the Emini has converted from a bull channel into either a trading range or a bear trend. They have not yet accomplished this. As strong as yesterday’s selloff was, it was not bearish enough on the 60-minute chart to get the bulls to change their mind.
Today and tomorrow are important. The bears need to do more. If they cannot get strong follow-through selling that drives the Emini below a major higher low, the Emini will rally again soon and test Monday’s high, which was a 50% retracement of the January selloff.