Although Friday was a strong sell signal bar on the daily chart for a nested expanding triangle top, the channel up from the February 11 low was tight, and the 2-day rally was strong. This makes the reversal more likely to be minor. Traders can take the sell, but the odds are that there are buyers not far below and that there will be at least one more new high in the rally. This is especially true since the monthly candlestick closes today and February will be a buy signal bar in a bull trend on the monthly chart. There is a 60% chance that March will trigger the buy by going above the February high. However, there is also a 60% chance that once the buy triggers, the Emini will fall below the bottom of the 2-year trading range before it breaks above the top.
The 2-day buy climax on the 60-minute chart will probably be followed by a TBTL correction. Although the selloff has already lasted 7 bars, it was in a tight channel and it will therefore probably be the 1st of 2 legs sideways to down. This means that whatever bounce that might come today or tomorrow will probably be sold for one more test down. The correction will create a bull flag, and it will probably be followed by a test above the February high.
The context is great for the bears. The Emini daily chart is in a bear channel, and this rally is a 50% correction. There is also a nested expanding triangle top and a good sell signal bar. The bear trend to below the 2-year low might have begun. However, that has a 40% probability. It is more likely that this reversal will be minor and create a bull flag on the 60-minute and daily charts.
The Emini is down 8 points with 30 minutes to go before the NYSE open. Today might open with a small gap down. It is possible that the pullback might go all of the way to the bottom of the expanding triangle, which was Wednesday’s low around 1890, and then form an expanding triangle bull flag. It is more likely that the pullback will not be that deep or last that long. However, if there is a strong bear breakout, traders will swing their short trades for a test of that support level.
Friday was in a broad bear channel, which is similar to a trading range that is sloped down. Today will probably evolve into a trading range. That bear channel is a bull flag. There is a 40% chance of a successful bear breakout below the bull flag and then a measured move down.