The Emini reversed up from a breakout below the neck line of a head and shoulders top on the 60-minute chart, as it usually does. Only 40% of tops lead to reversals. On Friday, I said that reversal was big enough so that the rally would probably get above the right shoulder of the head and shoulders top, which was last Wednesday’s high of 2060.50. The Emini got close yesterday.
Near the end of the day, I said that it was so close that it might gap above it today. It is up 9 points in the Globex session and above that high. The bears put their stops above that high. As long as the Emini is forming lower highs, the bears have a chance of a bear trend. Once the Emini gets above, then the 60-minute bear trend argument is over. The Emini is either still in a trading range (it has been in a trading range on the 60-minute chart for almost a month), or back to being in a bull trend.
The daily chart still has lower highs. However, I said that it would probably rally above the December 2nd lower high and test the November 3 lower high of 2093.25. The Emini daily chart has been in a trading range for 2 years. There is a cluster of 3 lower highs in the October to December trading range, which is near the top of the 2 year range. When there is a cluster of resistance levels at the top of a trading range and a market gets above 1, it usually gets above most.
If the Emini gets above the top one, it will probably then break out to a new all-time high above 2,100. If it reversed down, which is still more likely, it will then probably enter a trading range that lasts more than a month and is about 100 points tall, like it did 4 other times in the past 2 years.
This is an interesting area on the daily chart because the behavior here has importance for the next several months. Today and tomorrow will be especially interesting. If the bulls are going to get a breakout to a new all-time high, they are strong. If they are strong, they will do things to show traders that they are strong. One thing that bulls typically do is create strong breakouts.
If today is a big bull trend bar closing on its high and tomorrow is another bull bar, especially a big one that closes far above the 2,100 all-time high, traders will conclude that the bulls are strong. They will then think that the breakout could result in a measure move up, based on the 300 point height of the past 2 year trading range.
Since the Emini is still in a trading range, the probability is against a successful breakout. If it breaks out, the odds still favor a limited breakout, a reversal down, and disappointed bulls. Also, it has not ye broken out. It still is in a trading range. When a market is in a trading range, as soon as the bulls or bears get hopeful, they are usually disappointed. This means that the odds favor that today and tomorrow will end up disappointing the bulls. They would be disappointed by the lack of strong bull trend bars. If they are disappointed, they will take partial or full profits, and the bears will sell, at least for a 1 – 5 day trade. With bulls and bears selling this rally, the odds favor a pullback over the next week or so.
This what is fun and why the next 2 days are important. They shift the probabilities, depending on how they look. The stronger the breakout attempt, the more likely there will be a new all-time high within a weak. A failed breakout or a weak breakout means that a pullback and trading range are more likely.
Online day traders should be ready for a trend day up or down. Since the Emini is in a trading range on all time frames, today will more likely not be a strong trend day. However, it has the potential to be a very big day.