I wrote in my weekend blog that the odds were for a rally early this week. The 60-minute chart had a sell climax and the monthly bulls would try to form a higher low, which would create a triangle with the October 2014 and August 2015 lows. Since the triangle would be in a 6-year bull trend, it would be a bull flag. I also wrote that the breakout below the 3-month trading range on the daily chart was strong enough so that bulls are trapped in and bears are trapped out. This means both are looking to sell a rally to around the breakout point, possibly even above 1983.25 bottom of the range.
The Emini was up 19 points with 45 minutes before the NYSE open. A minimum reasonable target for a rally after a sell climax on the 60-minute chart is TBTL (10 bars, 2 legs), which is about a day and a half. It can be more because the legs on the daily chart over the past years have sometimes lasted 10 or more bars. In any case, the odds favor follow-through buy. If the 10-bar correction is sideways instead of up. today’s gap up could be the high of the day, and the Emini might simply form a trading range on the 60-minute chart. More likely, whether or not the Emini falls below yesterday’s low today or tomorrow, it will test probably above 1950 at a minimum soon.
I am expressing uncertainty, which is helpful because it tells me to expect a lot of trading range price action. When that is the case, I am looking to trade in both directions and I am quicker to take profits.
Today will probably have a typical gap up open. Traders will be willing to buy or sell. They need a pattern, like a double or wedge bottom or top with an appropriate signal bar, or a strong breakout up or down. Until then, they will either wait or scalp, mostly using limit orders.