Monday was a sell signal bar for a parabolic wedge reversal buy climax that was testing the top of the 6-month bull channel for the E-mini.
Yesterday triggered the sell signal by breaking below Monday’s low. Since yesterday closed below its midpoint and below Monday’s low, and it had a big bear body, today should trade sideways to a little lower.
Because the bull trend has been strong, this reversal down is probably minor. That means it should last only a few days before the bulls buy again.
There are now 3 consecutive bear bars. That is enough selling to usually lead to a second leg sideways to down.
A parabolic wedge buy climax typically also has at least a small second leg sideways to down.
Consequently, even if the bulls buy again today or tomorrow, the reversal up will probably only last a day or two.
With the bulls looking to buy the selloff and the bears looking to sell the first bounce, the E-mini will probably be mostly sideways for a few days. With the buy climax on the daily chart being as extreme as it has been, the E-mini could enter a trading range for a couple weeks.
Yesterday is a High 1 buy signal bar in a strong bull trend. But since at least a small second leg down is likely and it is the third consecutive bear bar, there will probably be sellers not far above yesterday’s high.
Can these 3 bear bars be the start of a 15% correction? Of course, and a correction is becoming increasingly likely.
However, I have been saying since the pandemic crash that it is more likely that every reversal down will be minor than the start of a bear trend. That is true here as well.
One of these reversals will eventually lead to a correction, but picking which one is a low probability bet.
The bears will need several more big bear bars before traders conclude that a correction might be underway.
E- mini 5-minute chart and what to expect today
E-mini is down 15 points in the overnight Globex session. It will gap below yesterday’s low.
If there is a gap down and it is small, it will probably close within the first hour.
The bears want a fourth bear day. If there is a series of bear bars early in the day, today will more likely continue yesterday’s trading range and bear channel.
If the bulls get a series of early big bull bars, today could be a bull trend day. However, today will have a difficult time getting much above yesterday’s trading range high.
Trading ranges are magnets, and that increases the chance of either a trading range or a continuation of yesterday’s broad bear channel, which traders will trade like a trading range.
Because the sell climax was extreme and yesterday was the third consecutive bear day, the sellers might be exhausted. This increases the chance of a continuation of yesterday’s trading range.
The bears want a resumption down from yesterday’s early selling and the bulls want a trend reversal up.
But 3 big down days after a strong rally creates confusion. Yesterday’s trading range might not have lasted long enough for traders to bet relentlessly on either direction.
Unless there is a series of strong trend bars in either direction, traders will look for reversals.
Even if today is a trading range day, there should be at least one swing and probably two.
Yesterday’s E-mini 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.
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. These therefore are swing entries.
It is important to understand that most swing setups do not lead to swing trades. As soon as traders are disappointed, many exit. Those who exit prefer to get out with a small profit (scalp), but often have to exit with a small loss.
If the risk is too big for your account, you should wait for trades with less risk or trade an alternative market like the Micro E-mini.