Pre-Open Market Analysis
The Emini has been in a tight trading range for 3 weeks. Yet, there has only been one close below the moving average in 60 days. Hence, the bulls are strong. While a tight trading range means breakout mode, the odds of the bull breakout are slightly higher.
The stock market will probably rally to above Dow 20,000 and sell off 5% to below the August high. Traders are deciding which will come 1st. There is no sign yet of a breakout. While the Emini is in breakout mode, the intraday swings have been big enough for 4 point swing trades. That will therefore probably continue.
Overnight Emini
The Emini is down 4 points in the Globex market. In addition, it has been in a narrow range. While the odds still slightly favor a bull breakout and a brief move above Dow 20,000, the bulls will not continue to wait forever. At some point, if they do not get their breakout, they will sell out of their longs and look to buy lower. The next significant support is at the August trading range high, which is 100 points below.
The current trading range is now 6 weeks long. Because that is a lot of bars, traders are ready for a strong breakout up or down. The need to see a breakout that contains a series of strong trend bars up or down before they believe that the trading range has successfully evolved into a trend.
All prior breakout attempts over the past week had bad follow-through. As a result, each led to a reversal. Hence, traders will continue to bet against breakouts until there is a strong one with follow-through. As a result, the odds still favor a continued trading range, even though everyone expects a successful breakout soon.