Pre-Open Market Analysis
The Emini has rallied strongly in a tight bull channel for 4 weeks. There are 3 legs up in the channel. This is, therefore, a parabolic wedge buy climax. The Emini is just below the December 12 high of 2690.50. That was the high of the parabolic wedge sell climax and a logical magnet.
A 1 – 2 week pullback typically follows a parabolic wedge rally to resistance. Because Thursday and Friday were strong, the Emini has 60% chance of first having a 1 – 3 day rally to above the December 12 high this week.
Risk managers will then tell their traders to reduce their longs. Their stops are now far below. Consequently, there is a significant risk of giving back an unacceptable amount of profit. The result of the profit taking will likely be a couple weeks of sideways to down trading. This should start by the end of this week.
Overnight Emini Globex trading
The Emini is down 16 points in the Globex session. Traders are deciding between a 1 – 3 day rally to a new buy climax high and the start of a 1 – 2 week pullback to support.
Because of the lack of clarity, day traders will mostly scalp. If there is a strong rally, swing traders will look for a major trend reversal. They expect a reversal down to be strong enough to begin a 1 – 2 week sideways to down move.
Alternatively, if there is a strong bear breakout, day traders will conclude that the pullback is underway.
A buy climax means that the bulls are exhausted. They begin to take profits on rallies. However, they doubt the resolve of the bears. They, therefore, continue to buy selloffs to below prior lows.
This most often leads to an Endless Pullback. That is essentially a tight trading range that is tilted down. Traders should expect that for the next couple of weeks.
Daily Chart has buy climax
Four-week rally is testing the top of December sell climax. But, the rally has 3 pushes up in a tight bull channel. It is, therefore, a parabolic wedge buy climax.