I have been saying since Friday that the sell climax down to support on the daily chart was likely to be followed by a trading range, which means about TBTL Ten Bars (2 weeks), Two Legs, sideways to up. I also said that a pullback on Monday or Tuesday was likely, which we got yesterday, and that the Emini would also probably go above last week’s high. This is still likely. The selling from yesterday continued last night, but the Emini reversed up 6 hours ago and is up about 7 points 30 minutes before the NYSE open. The odds are that the selloff will be limited because a 2nd leg up is likely.
Yesterday’s rally barely went above the January 19 lower high, but because it did, the odds are that the bear channel has evolved into a trading range. As with any trading range, traders sell new highs, and that is what happened. The bull breakout failed. The attempt at a new low will also probably fail. Traders expect that up and down will be limited after a sell climax down to support so they will buy low, sell high and scalp, which creates a trading range.
When the daily chart is in a trading range, more of the trading on the 5-minute chart also is usually within trading ranges. There will almost always be at least one swing up and down every day for the next week or two, but traders will expect most of the trading to be more two sided. When there is a swing, it will be weak, and traders will be able to make money most of the time trading in either direction. Counter-trend traders will mostly scalp and use limit orders, and many will use wide stops and scale in. When there is a strong breakout, like late yesterday, they will be more aggressive with their swing trading and enter on strong closes.