Tuesday, February 08, 2011
Here is a daily bar chart showing 24 hour e-mini trading over the past three months. It is characteristic of bull markets that prices march relentlessly higher, even in the face of bearish divergences in market breadth numbers, bullish sentiment, etc. Indeed the market typically looks pretty dull, not a lot of up and down movement, until the ultimate top is approached.
From this perspective the fact that daily ranges have been quite modest and that moves to new bull market highs are occurring on modest or even low volume are in fact bullish indicators. They mean that prices have not moved high enough to attract sellers. They also mean that there is not much bullish enthusiasm. And I would expect to see at least some enthusiasm at the ultimate top.
On the chart above I have drawn a trend channel. The upper line of the channel passes through the November 2010 high instead of through the January 2011 tops. This reflects my belief that as prices climb more investors will regain their courage to buy and that this will steepen the rate of ascent in the ES. If the move up from the January 31 low at 1262 matches the size of the swing up from the November low at 1171 then the market should be trading at 1387 sometime during the next couple of months (blue dash rectangles). My target zone is outlined by the green oval and is at the confluence of the upper channel line and the top of the second rectangle.