Last week the E-mini broke above top of 4-week trading range and today broke below bottom of the range.
Yesterday closed just above the open of the day and therefore it was a weak bull day.
Today has weak buy signal bar for reversal up from bottom of 4-week range.
Since the 4-week trading range had 3 legs up, it is a wedge. Traders should expect at least a small second leg sideways to down after a 1- to 3-day bounce.
If there is a lower high and a second leg down, there will be a lower high major trend reversal. That would have a 40% chance of leading to a 10% correction.
Is this the start of a 10% correction? Unless the bears get follow-through selling today, or a strong reversal down from a lower high this week or next, the odds will continue to favor a new high after every 1- to 3-day selloff.
But the odds are also that one of these brief selloffs will grow into a 10 – 20% correction this summer. The correction will not be clear until it is about half over.
Consecutive outside bars on weekly Globex chart
On weekly chart, this week so far is a big bear trend bar and it broke below last week’s low.
On the weekly Globex chart, this week is an outside down bar, and last week was an outside up bar. Consecutive outside bars is an OO (outside-outside) pattern.
That is a Breakout Mode pattern. Since it is coming in an overbought market, it increases the odds of lower prices if the Emini trades below this week’s low at any point in the next several weeks.
Since there is now an OO on the weekly chart, traders will pay a lot of attention to the rest of the week and to next week. If this week closes near its low and then next week breaks below this week’s low, the odds will shift in favor of a 10% corrections.
Overnight E-mini Globex trading on 5-minute chart
Down 27 points in the Globex session, but sharp reversal up in past 15 minutes from sell climax to below the 4,100 Big Round Number.
Traders are deciding if the yearlong bull trend is beginning a leg down over the next month or two.
If it is, the bears will create surprises. That means they will do things that are unexpectedly strong.
For example, today might become a big bear day closing far below the 4-week trading range.
Or, this week could close far below last week’s low.
Until the bears clearly take control, the odds will continue to favor new highs before there is a 10% correction.
Yesterday reversed up but then entered a trading range.
Today will probably gap below that range, but it will probably not gap below yesterday’s low.
Because the 2-day selloff was surprisingly strong and at support, there is an increased chance of a trend day in either direction.
Trading range trading is always more likely than trends. Yesterday went sideways after a strong selloff down to support. That increases the chance of it going sideways again today.
Traders might wait until the end of the week to decide if this is the start of a 10% correction, or just another pullback in the yearlong bull trend.
If there is a series of strong trend bars up or down on the open, the odds of a trend day will go up.
Yesterday’s E-mini setups
Here are several reasonable stop entry setups from yesterday. I show each buy entry with a green rectangle and each sell entry with a red rectangle. Buyers of both the Brooks Trading Course and Encyclopedia of Chart Patterns have access to a much more detailed explanation of the swing trades for each day (see Online Course/BTC Daily Setups).
My goal with these charts is to present an Always In perspective. If a trader was trying to be Always In or nearly Always In a position all day, and he was not currently in the market, these entries would be logical times for him to enter.
If the risk is too big for your account, you should wait for trades with less risk or trade an alternative market like the Micro E-mini.