Pre-Open market analysis
The Emini had another trading range day yesterday. Yet, it closed above its midpoint and therefore had a bull body. It is a buy signal bar for a High 2 bull flag today. It is also a wedge bull flag where the July 27 low is the 1st push down. Because the weekly buy climax is so extreme, the odds are that the best the bulls will get is a trading range. It is still more likely that the Emini has begun a 100 – 200 point correction.
Because the past 2 days were trading range days, there is an increased chance of another on today. Additionally, they are bad follow-through for the bears. Hence, they increase the odds of at least a 2 – 3 day bounce. Yet, the odds are that the Emini is in a bear trend so traders will sell rallies on the daily chart.
Test of the weekly EMA
Yesterday’s low got to within 3 points of the weekly moving average. If this week close about 10 points above today’s low, the moving average will get pulled up to above this week’s low. Therefore traders looking at the weekly chart will see this week poking below the average.
This can be true even without the low ever falling below the average. This is because on Friday, the location of the moving average will be based on Friday’s close. Hence, it can end up above the low of the week without the low of the week ever falling to the average.
Bull flag so breakout mode
In addition to the daily chart being in a High 2 bull flag, it is also in a bear channel. Consequently, the bulls will tend to take profits before the rally gets above the August 9 and 16 double top. Furthermore, the bears will sell there. They want another lower high, and then a strong breakout below last week’s low.
In addition to Friday being a buy signal bar for a High 2 bull flag, it is also the bottom of a wedge bull flag. The 1st push down is the July 27 low. This creates the possibility of a bear breakout below a wedge bull flag. The pattern is better for the bears if there is a 2 – 5 day rally up from the bottom. This began with yesterday’s reversal.
If the rally continues for a few more day, but fails to break above the August 16 lower high, the bears will sell. They want to trap the bulls. Their goal would be a break below Friday’s low, which is the bottom of the wedge. If they succeed, their target would be a measured move down based on the height of the wedge. Since the wedge is about 70 points tall, that selloff would reach the 2350 area and test the May 18 low.
Overnight Emini Globex trading
The Emini is up 7 points in the Globex market. It will therefore probably gap above yesterday’s high, triggering a buy signal on the daily chart. However, since the past 2 days were mostly trading range days, today is more likely to be another trading range day than a strong trend day up or down. If there is no strong rally or reversal on the open, the Emini will probably go sideways for an hour or two and enter breakout mode. Furthermore, a trading range open will increase the odds of another mostly trading range day.
Yesterday’s setups
Here are several reasonable stop entry setups from yesterday. I sometimes also show limit order entries and entries on the close of bars.