Nested Emini final flag and expanding triangle top
Pre-Open Market Analysis
The Emini did something very unusual over the past 2 days. By trading below the 5 minute and 60 minute trading ranges, reversing up to a new high, and then reversing down, it therefore completed a nested pattern. The daily, weekly, and monthly charts have the same topping pattern.
Nested topping patterns on 5 time frames!
When a topping pattern forms within a bigger version of the pattern, it forms a nested pattern. Two time frames both trying to reverse therefore makes a reversal more likely. A pattern that is nested on 5 time frames is extremely rare. Hence, it increases the chances of a reversal on all of the time frames. While this is likely, the reversal on the monthly and weekly charts will probably be bull flags. Yet, a 40 – 100 point selloff on the 60 minute chart is a bear trend.
Risk of buy climax
Very few traders see the 5 time frames of a nested top. Yet, most traders see one or more of the tops. Whenever there is a topping pattern that is fairly obvious, and the bull trend is strong, it often traps traders. The short triggers. Yet, the buyers come back and the weak, scared bears quickly buy back their shorts if the initial selloff is not strong.
This often results in a sharp rally to a new high. This therefore traps weak bears out. The strong rally above the top also traps weak bulls into buying because they are afraid of missing a huge new leg up. Yet, this is more often a final buy climax that leads to the start of the correction.
Emini Globex market
The Emini is up 3 points in the Globex session. Because yesterday’s selloff held above the bottom of Monday’s rally, it was a higher low in a bull trend. Yet, yesterday’s selloff was strong enough so that the bears have a 50% chance of a 2nd leg down from a Lower High Major Trend Reversal. The 5 minute Emini chart is in breakout mode after yesterday’s Big Up, Big Down candlestick pattern. That created a reversal on the 60 minute chart. The bulls hope that the 2 day trading range is a bull flag. Because of the Breakout Mode pattern, they, too, have a 50% chance of success.