The Emini has been in a tight bull channel on the 60-minute chart, and each pullback has lasted only one bar. That means that there are higher time charts that are in micro channels, which means that they have no pullbacks. For example, the 240-minute chart has 7 bars without a pullback, which means that it is in a strong bull trend, but not necessarily overdone. The 120-minute chart has had 14 bars without a pullback. That has not happened in over a year, which means in over 1,000 bars. Is that common? Obviously not. Therefore, the rally on the 120-minute chart is unsustainable and climactic.
There have been many times over the past 15 months where it has had 8 – 10 bars without a pullback. In every instance, the Emini entered a trading range within a few bars, which means it developed complex pullbacks that lasted about 10 bars and had two or more legs. This time is even more overbought. The obvious magnet of the February 1 lower high at 1940 is drawing the Emini up strongly. However, when a bull micro channel lasts 10 or more bars, it soon enters a trading range. Usually the 1st pullback is bought. That means that the first time it falls below the low of the prior bar, it is usually bought within a bar or two. This is then typically followed by a new high. The new high then usually reverses down within 3 bars, and a TBTL trading range then begins. If a micro channel is very extreme, and this one might be, the pullback can be much deeper and last for more bars than traders believe is possible, given the strength of the rally.
Since the micro channel is already the biggest one in more than 1,000 bars, there is probably a 60% chance of the Emini trading below the last 2 hour bar within the 1st 2 hours today, and a 90% chance that there will be a pullback below the prior bar at some point today. It will probably only last a bar or 2 (2 – 4 hours), and then the bulls will buy it. There will then be a new high that lasts from 1 – 3 bars (there are 4 bars each day), and then a 10 or more bar sideways to down move early next week.
The Emini is up 5 points with an hour to do before the NYSE open. Because of what I just wrote, traders should expect that any early rally will be sold and that any early selloff will be bought. This is consistent with the 4 hour trading range at the end of yesterday.