Pre-Open Market Analysis
The Emini formed a trading range day yesterday. Especially relevant was that it closed above 2244.50. That was the price needed to lift the daily moving average to above the low of the day. As a result, yesterday triggered a 20 gap bar buy setup on the daily chart. Yet, the price never fell to the daily moving average! Remember, the moving average is an average of closes. Hence, it has nothing to do with all of the other trades during the day. Yesterday’s close was high enough to pull the moving average above the low of the day.
Dow 20,000 On Last Day Of The Year?
The Dow 20,000 Big Round Number is a psychological magnet. Yet, it is more symbolic than predictive. Because the bulls have been strong this year, they want other traders to become eager to buy at the high. They therefore want as many signs of strength as possible. A close above 20,000 will create headlines and make traders more confident. It would be a close of the day, week, month, and year above a psychologically important number.
Institutional traders, like everyone else, have egos. Hence, they enjoy overcoming barriers and media attention. Dow 20,000 will make them feel powerful among their friends. In addition, they will enjoy their 15 minutes of media fame.
What happens if they fail to get a yearly close above Dow 20,000? Nothing. Since the bulls are strong, the odds still favor a move above Dow 20,000 soon. Furthermore, yesterday was the 1st pullback to the daily moving average in more than 20 bars. Hence, bulls who have been willing to buy above the average price now can buy at the average price. Many therefore will. As a result, the daily moving average is support.
Overnight Emini
The Emini is up 6 points in Globex trading. Because Dow 20,000 is 80 points above yesterday’s close, the bulls will try to get the year to close above that big round number today.
New Year’s Eve Black Swan?
Rare events are more likely during certain times, like the last trading day of the year. In 2009, the Emini was in a 1 point range for 4 hours, and then had a big Sell The Close finish. In addition, the volume was big.
Today is New Year’s Eve for traders. The odds are that today will spend a lot of time in a tight trading range. Yet, the computers do not sleep. Look at the chart above from New Year’s Eve in 2009. Many bars were only 1-tick tall, and the 4-hour tight trading range was barely more than 1 point tall. However, there was a strong Sell The Close trend at the end of the day, and the final sell climax bar had 77,000 contracts. This is a reminder that no matter how quiet the market is, the computers are still looking for opportunities. Because the Dow is so close to such an important number, if it can stay within reach, the bulls might get a strong rally at the end of the day.