Pre-Open market analysis
The Emini yesterday reversed up from below the October low and the 2600 Big Round Number. Because the day closed near its high, it is a reasonable buy signal bar for today. The bulls want the failed breakout to begin a yearend rally.
However, the 5 day bear channel has been tight. In addition, yesterday’s body was relatively small. Finally, reversals in trading ranges typically disappoint traders who are hoping for a trend. Consequently, while the odds favor at least slightly higher prices, the bulls need many bull bars closing near their highs. Without that, any rally from here will probably fail within 1 – 3 days.
The reversal up from major support is bad for the bears. However, it is consistent with the weekly chart being in a trading range and the monthly chart forming a bull flag.
Disappointing breakouts and reversals are more common in trading ranges than in trends. While the Emini has sold off strongly over the past week, the selloff is still probably a bear leg in a big trading range.
The Emini is in search of a bottom. Because legs in a trading range often fall further than what might be likely, this selloff might continue to the monthly bull trend line below 2400 before reversing.
Although yesterday is a buy signal bar on the daily chart, the bulls will need several bull days before traders believe that yesterday is the final low.
Overnight Emini Globex trading
The Emini is up 33 points on the Globex chart. Today will therefore probably gap above yesterday’s high. That will trigger the buy signal on the daily chart. Because the daily chart is oversold and reversing up from support, the big gap up has an increased chance of leading to a bull trend day.
When a gap up is big, the Emini is far above the EMA. Many traders do not like to buy far above the average price. However, it also reduces the chance of a big bear day. Consequently, there is only a 20% chance of a strong bull or bear trend from the open that lasts all day.
Most of the time, the Emini has at least one reversal in the 1st hour. The bulls look to buy a double bottom or wedge bottom near the EMA.
The bears want any early rally to form either a double top or a wedge top. They want to see several bear bars closing near their lows. That would be a sign of strong bears and increase the chance of a bear trend.
A big gap up increases the chance of a bull trend day. The bulls want the Emini to hold above the EMA for at least the 1st couple of hours. In addition, they will look for High 1, 2, and 3 bull flags just above the EMA. Finally, they like to see gaps and body gaps. These are all signs of a strong bull trend. If the develop, the bulls will swing trade.
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. 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.