Pre-Open market analysis
As I have been saying for the past month, the Emini will probably test the March 15 high before falling to below the 20 week exponential moving average. That target is around 2300. Because the Emini never tested the close of last year, the selloff will probably reach it as well.
Consequently, the math is excellent for put buyers. The odds are 70% that the Emini will fall at least to 2300 within the next month before going much above the all-time high. This is an unusual instance when there is a high probability and a strong risk reward ratio. Yet, because few traders see the trade, this is a time when a nearly perfect trade can exist.
Weekly buy climax
The Emini is fascinating at the moment. The daily, weekly, and monthly charts are in strong bull trends. Yesterday’s gap up was therefore a breakout above a 2 month bull flag on the daily chart. This would normally be very bullish and favor much higher prices. Yet, there is an unusual buy climax on the weekly chart that overrides this bullishness.
Can the Emini continue up for a couple more months. Well, during the 8 years of the bull trend, the Emini has never been above its weekly moving average for more than 27 weeks. It has now been above it for 24 weeks. Furthermore, when it has been above the average for 20 or more weeks, it began to turn down by the 24th week, which is this week. Therefore the odds are that this week or next week will be the top for the next month or two.
Island top?
Whenever there is a gap up late in a bull trend, especially at a prior high, traders have to be aware of a possible double top. Furthermore, when the gap is big, as yesterday’s was, the market is emotional. Consequently, there is an increased potential for a big move. Yet, traders always have to be respectful of institutions who believe the exact opposite of what seems so obvious.
As a result, there is an increased potential of a strong reversal down. That can come from an endless pullback from the rally, a big bear bar, like on March 31, or a gap down. If there is a gap down over the next week, it would create an island top. If the gap is big and the day is a big bear trend day, the odds would favor at least some follow-through selling.
Because of the buy climax on the weekly chart, there is at least a 60% chance of some kind of reversal down over then next few weeks, In addition, that reversal down will probably lead to at least a 20 point break below the weekly moving average. That average is currently around 2312.
Overnight Emini Globex trading
The Emini is up 10 points in the Globex market. It therefore will probably gap up again today. Consequently, it is getting vacuumed up quickly to the March 15 lower high of 2,387.75.
While the momentum up is strong, the Emini will probably fail on its 1st attempt to break above that major lower high. Since the open will be within 10 points of the target, there is an increased chance of a lot of trading range trading again today.
If the Emini breaks strongly above that high, it will probably quickly rally to above 2,400. Yet, the buy climax on the weekly chart will probably lead to a reversal down within a few weeks.