Pre-Open Market Analysis
Yesterday was a small day. When there is an unusually small day, there is an increased risk of a big day. In addition, there are buy climaxes on the daily, weekly, and monthly charts. Furthermore, the daily high is just 7 ticks below a major measured move target. The Emini bulls will try again to get above that resistance today. Finally, the 8-day wedge on the daily chart after a very strong breakout increases the chances of a reversal down within the next few days.
Finally, A Topping Pattern
While the weekly and monthly charts have been overbought for many months, the bears needed either a credible topping pattern or a strong reversal down with follow-through selling. They have had neither, and the result is that the climax has continued to become more climactic. Well, now, they have a credible top on the daily chart. They next need the strong reversal down. They might get a breakout above the resistance, and then a reversal day or a 2-day reversal for a sell signal 1st.
Will it happen? The odds are always against traders picking reversals. However, if a strong reversal begins today, traders should try to swing part. This is because there is an increased chance of a big bear trend day in the next 2 weeks, and the range could be 30 points or more. Please read the last 2 sentences of the weekly update. They read, “In addition, a small wedge top at the end of a buy climax can be the start of that correction. As an example, look at the small wedge top on the weekly chart in March, 2004. That led to a 30 bar (week) trading range.”
What is most likely? After 8 quiet days, another quiet day is likely. There is a small chance of a big bull trend day. It one comes, traders should be ready for a reversal down late in the day or on the next day. The odds favor a sharp move down within 1 – 3 weeks.
Overnight Emini Globex
The Emini is up 4 points in the Globex market. It might therefore gapped up to a new all-time high. In addition, it might gap above the 2559.75 measured move target on the daily chart. The bulls want a strong breakout above that target. If they succeed, the next target is a measured move target on the weekly chart 20 points higher. The bears need a reversal down today or tomorrow to create a sell signal on the daily chart. They have a small wedge rally, which is a reasonable top after an extreme buy climax, but they need more. They need a sell signal and a strong reversal down. The next few days give them an opportunity. Since most reversals fail, the odds are against them. However, this is one of the best chances that they have had in several months.
Yesterday’s Setups
Here are several reasonable stop entry setups from yesterday. I sometimes also show limit-order entries and entries on the close of bars.