Strong reversal up on Friday after 5 consecutive bear bars. E-mini is testing the 4700 Big Round Number.
The Nov. 5 top came from just below the top of the 15-month bull channel. Some traders believe that the resistance was not adequately tested. They want to see a reversal down from above the top of the channel. Since the channel is rising, the top is now around 4740. It is a magnet above.
I wrote last week that while the selloff was strong, every strong selloff since the pandemic crash was a bull flag and led to a new high.
What is different this time is that the Nov. 5 high was a reversal down from the top of a month-long parabolic wedge and the top of a 6-month bull channel. That increases the chance of at least a small second leg sideways to down before the rally gets much above the high or above the top of the 15-month bull channel.
But even if there is a double top reversal, traders will still buy it.
This has been an extremely strong bull trend and at no point did the bears ever have more than a 50% chance of a trend reversal.
They will need an extremely strong selloff, probably to below the bottom of the bull channel, before many traders will think that a correction is likely. Until then, they will buy every reversal down.
What to expect today
E-mini is up 15 points in the overnight Globex session.
It will gap up. The bulls want a strong breakout above the 4700 Big Round Number and then a new all-time high.
However, Friday had a very strong rally, but then entered a trading range for several hours. That is an area of agreement and therefore a magnet. If there is a reversal down in the first couple hours, it will probably continue down to the middle of Friday’s range.
The E-mini went sideways for several days last week around 4700. Also, the selloff had 5 consecutive bear days, which is relentless selling. Both of these facts increase the chance that yesterday’s rally will stall again here for at least a couple days.
While a trading range around 4700 is likely for a few days, any day can be a trend day. If there is a series of strong trend bars in the first hour, traders will expect a trend day.
If there is a trend, up is more likely after Friday’s strong rally.