Here is an hourly bar chart of day session e-mini trading over the past month. Most of the trading has occurred in the two ranges outlined by the blue ovals. This is the most extended period of narrow, sideways trading we have seen during the rally from the March low at 666.
What does it mean? The natural interpretation is that bullish interest is weakening and bearish interest is strengthening, a process that is commonly called distribution. But I have been in this game long enough to be suspicious when I get lots of chances to sell near "the top". Even if this is distribution, I think it is more likely that we see an upside breakout first, possibly to 1140 or so, before a big break develops.
I have been expecting a drop to 1040 or so. But I am becoming very uncomfortable because the market is NOT displaying a normal bearish rhythm - successive "take no prisoners" declines separated by modest, relatively brief rallies. Instead we are seeing brief selling spasms followed by extended sideways action.
For these reasons I covered my earlier short for a modest profit. If this market should move back above the 1100 level I will be convinced that a substantial rally is underway.
Note: The March 2010 contract will become the active contract starting with the pit open tomorrow.