Caution Lights Flash
Three consecutive “outside days” have appeared on the e-mini futures chart, a sign that traders have turned cautious. Outside days indicate a wider trading range than the previous day, with both higher highs and lower lows. Notably, Wednesday’s trading resulted in a negative outside day, closing below the previous day’s low.
Support Levels under Scrutiny
Technical analysts use outside days to assess investor sentiment and potential trend changes. In this case, the negative outside days suggest a downward shift in the market. According to Tom Fitzpatrick of R.J. O’Brien, the immediate support level to monitor is 5,191.50 to 5,193. If breached, the next critical level is 5,098, the e-mini’s 55-day moving average.
Analysts Remain Upbeat
Despite the recent negative outside days, chart analysts maintain a positive outlook for the longer term. Ari Wald of Oppenheimer explains that these exhaustion signals occur amid an overall bullish trend, reducing their significance. “We expect the market to continue its upward trajectory,” he says.
Not So Concerning Yet
Will Tamplin of Fairlead Strategies agrees, stating that outside down days become less impactful when preceded by consolidation, as witnessed in the past few days. He emphasizes that the trend is still intact until proven otherwise.
Outside Week Last Week
Last week, the e-mini futures experienced a bearish outside week, a pattern characterized by a wider trading range than the previous week, with a close outside the previous week’s range. This bearish indication was primarily driven by rising Treasury yields, which tend to affect the stock market.
E-mini Futures in a Nutshell
E-mini futures are traded electronically, settled for cash, and represent a fraction of the underlying stock index. Their versatility and liquidity make them a popular trading instrument.
Data sourced from: cnbc.com
