Thursday, July 23, 2009
Here is a five minute chart of e-mini day session trading. I think we have just seen a short term volume climax (red arrows).
This implies that the market is near it high for the day and probably near the point at which it will begin a break that lasts a day or two. I think such a break is imminent for two reasons. First of all, the e-minis have risen eight consecutive days without breaking a previous day's low. This is an unusually long streak - a long term sign of strength but a short term warning of an imminent reaction. The second reason I think a drop lasting a day or two is likely is that today was an obvious breakout day to the upside. As such it will attract a lot of attention and this is likely to give longer time frame traders a chance to sell into strength.
Even if the market does break for a day or two here, I don't think it will go straight down. Instead I think we shall see some sideways trading above the 960 level first. I want to be a buyer on the first reaction that matches the size of yesterday's drop (purple rectangles). Support right now is at the midpoint between today's high and yesterday's late reaction low (red dashed line).