50 point break

Here is a daily bar chart of the June '09 e-mini day sessions. As I noted earlier today, a supply shock hit the market right after the opening. Afterward, the e-minis dropped below the 903 midpoint between 1067 and 739 as well as below the 905 reaction midpoint. Taken together these facts point to an ongoing drop which will end at a higher low. Once this corrective move is complete I expect the market to move to 950 or so, or even higher, during the next month.

How big a break might we see? To answer this kind of question I like to look at the market's recent habits and also consider the location of midpoint support levels. Since there have been two previous 50 point breaks on the way up from the March low it makes sense to guess that the current break will be about the same length (purple rectangles). This would put its low near 877. I have highlighted two nearby midpoint support levels. The first is the midpoint of the reaction which carried the market from 885 to 862 (purple dotted line). The second is the midpoint between the 1067 October high and the bear market low at 666 (red dashed line) standing at 867.

From such considerations I conclude that this break will end in the 865-880 range. It will probably last anywhere from 2 to 5 trading sessions. Once it is complete I expect to see the market rally to the next midpoint resistance which stands at 952.