The Emini reversed up from a parabolic sell climax that fell below the August bear trend low. The bulls see the selloff from the October high as a 2nd leg down from the July all-time high. It is a high 2 (ABC) bull flag on the monthly chart. January was down as much as 10%. That is extremely unusual. With a lot of time left to the month, the odds are that it would be down less. These factors all made a reversal likely this week. I wrote over the weekend and on Monday that the Emini would rally this week, but it first might sell off more. The rally has probably begun. Since the selloff has been so climactic on the daily chart, the odds are that the pullback from the selloff will be a sideways to up move lasting TBTL Ten Bars, Two Legs. Since a 2-week trading range is likely, online day traders will look for legs that last 2 – 5 days.
Yesterday had enough momentum so that bulls will look to buy selloffs. It was also a buy climax so bears will sell rallies. There should be good two-sided trading for the next few days, with opportunities for swing trades up and down. The Emini is up about 6 points 30 minutes before the NYSE open.
When there is a buy climax, like yesterday, there is a 50% chance of follow-through buying for the 1st 1 – 2 hours, and a 70% chance of at least a 2 hour trading range that begins within the 1st 2 hours. There is a 25% chance of a strong bull-trend day from the open that lasts all day, and a 25% chance of a bear-trend day. No matter what happens, there is a 70% chance that a trading range has begun on the 60-minute and daily charts.