Friday was the 5th consecutive bull trend day after a higher low major trend reversal. The chart pattern was also a head and shoulders bottom. While the reversal is strong, it is now in the top half of a month-long trading range. In addition, Friday was the 5th consecutive bull trend bar on the daily chart.
Look at the streaks over the past year. The odds are that today or tomorrow will have a bear body on the daily chart. That means a close below the open. Consequently, traders will look for a reversal down after a morning rally.
Obviously, 5 consecutive bull days means that the bulls are strong. However, the stop is now far below and many bulls will take profits. They will look to buy again after a 1 – 3 day pullback.
Because this is strong buying pressure, the bears will probably need at least a micro double top before they can begin a reversal down lasting more than a few days. But, the Emini has been in a trading range for a month. Therefore, most breakouts fail. The Emini’s gap up today will be a test the November high and the 2800 Big Round Number. Traders will expect at least a minor reversal down this week. As a result, the bears will begin to look to sell for a 1 – 3 day pullback.
Because of the bull micro channel, the bulls will look to buy after 1 – 3 days down. Traders know that the trading range is more likely to continue than to break into a trend. They both will therefore take profits after any move goes 1 – 3 days. The result will likely be a continuation of the trading range for at least several more days.
The Emini is up 42 points in the Globex session. Although there will be a gap on the daily and weekly charts, there will not be a gap on the monthly chart. When there is a big gap up on the daily chart, there is an increased chance of a trend day up or down. Typically, the odds slightly favor a trend in the direction of the gap. Here, that would be a bull trend. However, after 5 bull days, today or tomorrow will probably be a bear day. Consequently, traders will look to sell a rally either today or tomorrow.
A big gap up means eager bulls. However, traders do not like buying far above the average price. Today will open far above the 5 minute EMA. There is only a 20% chance of a bull or bear trend from the open that lasts all day. There is an 80% chance of at least one reversal in the 1st 90 minutes, even if today ends up in a trend. The bulls will look to buy a wedge bottom or double bottom near the EMA. However, the bears want an early top. They will sell a wedge rally or double top on the open and hope for an early high of the day.
If the opening range has a strong leg before a reversal, the odds of a big trend day go down. Traders will look for a weaker trend day. They therefore will be willing to take some trades in the opposite direction. Furthermore, they will look for at least a minor reversal in the 2nd half of the day.
Here are several reasonable stop entry setups from Friday. I show each buy entry with a green rectangle and each sell entry with a red rectangle. I rarely also show limit order entries and entries on the close of bars. 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.
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