Downside break and trend line bounce today. The Emini closed down 1.75 points at 1,359.00 on Wednesday. We got the downside break expected after yesterday's analysis. Then the Emini bounced off a rising trend line on large volume in the afternoon. Will the rally continue?
Leave the trend lines to the computer
In a previous post, I talked about how subjective drawing trend lines can be. As usual, my answer is to get the computer to do the hard work. The trend lines shown on the chart above have all been drawn automatically.
First, pivot points with a strength of 4 (i.e. higher or lower than the four bars on either side) are identified and plotted as red and green dots on the daily bars. Then trend lines connecting these points are automatically added.
Rising trend lines are colored green and falling trend lines colored red. In addition, I also color the daily bars based on the trend line direction – red for up and green for down. Market indecision is shown with white daily bars.
Oops pattern again
The market opened below yesterday's low and then immediately rallied past it. This is a classic Larry Williams Oops pattern, usually indicating that non-professionals have panicked and allowed the professionals to take advantage and start buying. The market continued to rally until it hit resistance around 1,362.50 – close to the highs made over the last four days. The Emini then fell sharply to 1,351.
Then a trend line bounce on high volume
This level coincided almost exactly with a significant rising trend line joining the lows made on 11 September, 22 September and 3 October. The more touch points, the more significant a trend line is. At this point the Emini rallied strongly on high volume to close at 1,359.00 – all during the last hour of trade.
The market is now range bound with the upper resistance level at 1,363 and the lower support level at 1,351. We are likely to see another test of this resistance level, since were are only 4 points away. However, we'll have to wait and see whether there is enough volume to push the market significantly higher or whether it will run out of steam again.
Good luck with your Emini trading.