Tomorrow is Thanksgiving, which means that today will give online day traders a chance to learn how to trade before a holiday. The 60-minute chart had a wedge-top buy climax that ended on Thursday. It reversed up yesterday after 2 legs down and met the minimum objective of those who trade the markets for a living. Those learning how to trade the markets should understand that when a market goes too far too fast, traders take profits and then usually wait for a couple of legs of sideways to down trading. If the bears fail to create a trend reversal after about 10 bars and 2 legs, the bulls begin to doubt that the bears are strong. The bulls buy again, looking for another leg up. That is what happened yesterday.
However, the Emini has been unable to break strongly above the August 17 top-of-the-bear trend and then the all-time high from July, which is just a little above that. As long as the bulls continue to fail, the odds remain at 50% that they will succeed, despite the strength of the rallies since the October low. Until there is a breakout, there is no breakout. The end of the year has psychological importance. The bulls want a new all-time high before year end, and they want the Emini to close the year above the July all-time high. These are signs of strong bulls. The more signs of strength that they can create, the more traders will be confident that the Emini is going higher, and the more willing they will be to buy at the high.
The bears always want the opposite. As long as they are able to prevent a new all-time high, they still have a 50% chance of a test back down to the October low. The bulls have momentum on their side. The bears have strong resistance on the theirs. The net result is that the probability is the same for both.
The Emini yesterday has an especially strong bull breakout at 8:25 a.m. PST. that lasted for 3 bars on the 5-minute chart. One of the bars opened on its low, and that low did not overlap the prior bar. This was unusual buying pressure and it resulted in a bull trend that ended with a higher high major trend reversal in the last hour. That reversal might result in a trading range today because that is what follows most trend reversals. Also, there is resistance above and today is the day before a holiday, and traders will be distracted and less willing to commit to the markets.
The Globex chart rallied overnight and then has been sideways in a tight trading range for 4 hours. It is up 5 points at the moment, just below yesterday’s day session high. The November high of 2110.25 is about 20 points above. While the Emini could easily get the breakout on most days, there might not be enough volume to get there today, especially after yesterday’s buy climax, and when 3 of the past 4 days were doji candlestick patterns on the daily chart. That is trading range price action. When most of the recent price action has been in a trading range, the odds of more trading range price action is high.
If there is a strong breakout up or down, online day traders will look to swing trade their positions. Going into the day, traders will be cautious and will lean toward scalping until there is either a clear buy setup, like a double bottom bull flag, or a clear sell setup, like a double top, or until there is a strong breakout up or down.