As I said yesterday and over the weekend, the odds were that yesterday’s selloff was probably just a bear leg in a bull flag, even though it was an entry bar for an expanding triangle top. The channel up from the bottom of the 2-year trading range was too tight. The momentum was strong enough so that the Emini was more likely to need a 2nd signal. Also, the Monthly candlestick pattern, which closed yesterday, was a buy signal bar, and the monthly chart has a bull flag. The odds are that March will need to trigger that buy by going above the February high. However, since the buy signal is weak, the odds are that the monthly buy signal will fail, just like yesterday’s entry below the daily sell signal will probably fail.
The Emini finished yesterday with a dramatic lower low major trend reversal and a big buy signal bar. I mentioned in the room that if I was trading a fund, I would have bought in the final minutes of yesterday for a move above the February high. The Globex session is up 15 points with an hour to go before the NYSE opens. While it is too early to be certain what will happen today, everything I said yesterday remains the most likely path. Even if there is another leg down, it will probably be limited, and March will probably trade above the February high within the next week or two. However, the odds are that the bull breakout will not get too far and then fail. There is still a 60% chance of a bear breakout below the 2-year trading range before there is a bull breakout above the top.
Yesterday had a strong sell climax. There is therefore a 50% chance of follow-through selling for the 1st hour or two and a 75% chance of at least a 2-hour sideways to up move beginning before the end of the 2nd hour. When there is a big gap up above the moving average, there is a 60% chance that the initial move up or down will end within an hour and be followed by a sideways move toward the moving average. Once near the moving average, the Emini will decide between resumption up or reversal down. If there is a strong bear reversal bar on the open or a 2nd entry sell signal or a strong bear reversal, traders will swing for a trend down to test yesterday’s close. If there is a strong bull bar on the open, traders will be more cautious because the Emini will be far above the average price. They will more likely take profits within 5 – 10 bars, and this usually results in a trading range. Traders will be ready for either a trend from the open up or down, but know that any early trend will probably end up as a leg within a trading range for a couple of hours.