Emini Tests Range Bottom

The Emini sold off in the Globex market and is getting close to the bottom of the September trading range, which is around 1890 and 1900. The selloff was in 3 pushes on the 60-minute chart and the bulls hope that it will reverse up from a wedge bottom at the bottom of the September range. If it does, they will see this as a double-bottom, higher-low major trend reversal on the daily chart and they will hope for a new all-time high.

Major trend reversals have about a 40% chance of leading to a big swing, and that is the case here as well. Because the daily chart is in a bear trend and there are still targets below, there is still a 60% chance of a bear breakout below the month long trading range and then at least 2nd leg down. There is also at least a 50% chance of a test of the October 2014 low.

Although the Emini might continue down to the monthly trendline and the March 2000 high, both in the 1600s, the odds of that at the moment are about 20%. A strong bear breakout below the bear low, if one comes, would quickly increase that possibility.

Because the selloff on the 60-minute Globex and day-session charts is in its 3rd push down to near a support level, the Emini will probably begin to go sideways today or tomorrow. What are the chances that the bear trend on the daily chart has begun its 2nd leg down? Maybe 50%. There is still a 50% chance of s strong bounce up from the bottom of the trading range for one more bear rally attempt before the bear trend resumes. If there is a rally for a couple of weeks, bears will look at it as a lower high, and as a right shoulder in a head and shoulders top bear flag.

The Emini is down 18 points in the Globex session and it will probably gap down. Because it is near the bottom of the trading range and in its 3rd push down, the probability is that the downside will be limited today. If the bear trend is resuming on the daily chart, the bears might be able to achieve the low probability outcome of a strong bear trend day. If today does sell off strongly with a big bear breakout and follow-through, or relentlessly in a small pullback bear trend, online day traders should swing trade their shorts.

It is more likely that any initial selling will be limited to an hour or so, and then the 60-minute chart will either transition into a trading range or begin to reverse up. Because the Emini has been in a trading range for a month and most of the days have been trading range days, today is likely to have a lot of trading range price action whether it trends up or down. Traders will be quick to take profits, unless there is a strong trend day up or down.

The context is good for the bulls and the momentum is good for the bears. Context, meaning support and resistance, is usually the most important force on the chart. The odds are that the selling will be limited today, despite the big gap down. There is room down to the 1900 area, but 1890 to 1900 is support since it has been the bottom of the range for a month.

Also, look at the bars in the selloff over the past week on the daily chart. Where are the consecutive big bear bars? This leg down looks more like a bear leg in a trading range than in a bear trend.