The Emini is up 13 points with an hour to go before the NYSE opens. If you read my post over the weekend, you will see that the odds favor a bounce this week. Last week’s selloff closed a big gap on the daily chart and reached a measured moved target based on the 3 month trading ranged, and it did so in a sell climax. That combination is enough to make a bounce likely, and the rally might test the bottom of the 3 month trading range around 1980 over the next 2 weeks. Whatever rally comes will probably be sold. The break below the range was strong enough so that Friday’s low will probably be tested. There is a 60% chance that the rally will become a bear flag, and that it will be followed by a test of the September 29 higher low. The bulls will try to create a double bottom higher low major trend reversal there, and prevent a break below the August low. The bears want a test of the monthly trend line around 1700, and they have about a 40% chance of success.
The 60-minute chart has fallen in a tight wedge channel for about 50 bars, which is a long time. This is a sell climax. There is a 60% chance of a TBTL correction soon (Ten Bars, Two Legs). It might begin today. Targets are the moving average around 1945, and January 7 gap around 1970, and the top of the wedge channel around 2015.
Since the odds favor a swing up for several days, the odds of a bull trend day are higher than usual today. The 5-minute chart has a 2 day wedge bottom. The first target is the top of the wedge bear channel, around 1928, and the Emini is just about there in the Globex session. The ranges have been big.
This increases the chances of swing trades today. If today has big bars, day trading scalpers will hold for 2 – 4 points, instead of 1 – 2 points. Swing traders will also look for both a bottom to buy and a strong bull breakout.
Whenever the odds of one direction are high, there is a possibility of a pain trade. Instead of an oversold market getting a relief rally, the bear trend might continue down to the September low, and the bear swing might come after a strong early rally that traps the bulls. This is important to understand for traders learning how to trade. If the Emini begins to sell off strongly, those who trade the market for a living will sell, and not be paralyzed by their prior belief that a selloff was not likely. The job of a day trader is to trade what is on the chart, and not trade based on an expectation of what should be on the chart.