ES 80-Point Reversal This Month
Al Brooks | Jun 07, 2016 09:16AM ET
Pre-Open Market Analysis
S&P 500 Emini: Learn how to day trade expanding triangle tops
The Emini made another all-time high yesterday. The cash index is still 21 points below its all-time high, which is a magnet. It might instead form a double top lower high with the November high of 2116, which is only 3 points above today’s high.
It is too early to know if the cash index will make a new high and if it will form a double top with the old high from May 2015 or with the November high. However, the cash index is creating resistance for the Emini at about 3 and 21 points above today’s high, around 2015 and 2033.
There are problems with the Emini breakout to a new high. The weekly chart had a buy climax in April and is now testing above that high; when that happens, a trading range usually follows. The monthly chart tried and failed to create an outside up month in May. The daily chart failed on several opportunities over the past week to gap up to a new high. Yesterday’s breakout on the daily chart was not strong. There is a nested expanding triangle on the daily and 60 minute charts. Finally, most trading range breakouts do not go far before failing.
All of these factors make it likely that the bulls will be disappointed and will sell out of their longs within a few weeks. If so, the pullback might test down to the bottom of the 3-month trading range (expanding triangle top) at the April low, which would be about 80 – 100 points down.
The bears will probably buy puts and put spreads this week, betting on the pullback. They know that the odds are that the Emini will rally at least a little more, but they want to have their position on in case there is a Black Swan selloff, which would make it difficult to then put the position on. They will trade small enough so that they can add on 10 – 20 points higher, but they would only do so if the continued rally did not convert into a strong bull breakout.
The Emini is up 3 points in the Globex market. Traders should expect a reversal over the next couple of weeks that will probably test the April low, which is the bottom of the expanding triangle.
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