Pre-Open Market Analysis
Institutions mostly watch the cash index and are more interested in the close than the high. The Emini on Tuesday broke to a new high, but the high of the cash index did not reach the highest close from February.
Yesterday’s high in the cash index finally went above below the all-time highest close from February, but only by about a point. The bulls might try again today to get a new all-time closing high in the cash index.
But this is now two days where the cash index reversed down around the February close. That is a micro double top, and there is also a possible double top with the February high.
How much higher can this rally go? Probably not much. The extreme streak of nine consecutive bull bars ended on Tuesday. That is an unusually overdone buy climax. There were similar streaks in January 2018 and this June. Both led to about 10% corrections.
Traders expect the Emini to soon go sideways to down for a week or two. There is a 40% chance of a 10% pullback beginning this month. That would be similar to the selloffs after the streaks of consecutive bull bars in January 2018 and June 2020.
Overnight Emini Globex trading
The Emini is up 1 point in the Globex session. The bulls will try to get the cash index today to close above February’s all-time highest close.
Since the Emini is derived from the cash index, traders expect the Emini to try to rally as well. But the nine consecutive bull bars is an important sign of an extremely overdone rally. Most traders are unaware of the nine-day factor, but they sense that the rally has been extreme. Even if the bulls break strongly to a new high, the rally will probably not go much higher before there is a test down to the 3,000 Big Round Number, which is about 10% down.
Yesterday spent most of its time going sideways. That increases the chance of more trading range price action today.
Tomorrow is Friday and traders are starting to think about the weekly chart. Will the week become another big bull bar, like the past two weeks? Unlikely, but the bulls still want it to close on the high. The bears want it to close below the open so that this week will be a bear bar.
Yesterday’s 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. I rarely also show limit order entries and entries on the close of bars. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. Buyers of 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).