Market Overview: Weekend Market Analysis
- Market Overview: Weekend Market Analysis
- 30-year Treasury Bond futures
- EURUSD Forex market
- S&P500 Emini futures
- Monthly Emini chart has a big bull bar at all-time high
- Weekly S&P500 Emini futures chart has formed a small double bottom bull flag
- Daily S&P500 Emini futures market breaking above January trading range
SP500 Emini futures market broke above the January trading range this week. The bulls have a 50% chance of a strong break above the 4,000 Big Round Number before there is a 10% correction.
Bond futures are selling off in a Small Pullback Bear Trend on the weekly chart. Traders have been selling every 1- to 3-bar bounce. The March 2020 pandemic low is a magnet just below this week’s low.
EURUSD Forex weekly chart broke below an 8-week trading range this week. The reversal is from a wedge top, which formed a double top with the February 2018 high. Because the week closed above the trading range low, and in the middle of the week’s range, next week will probably be sideways to up.
30-year Treasury Bond futures
The Bond futures weekly chart is in bear channel and March low is magnet below
The weekly bond futures triggered a Low 1 sell signal this week by trading below last week’s low. Last week was a pullback from the breakout below the 2020 trading range, and this week was a resumption of the Small Pullback Bear Trend.
Because the chart has been in a tight bear channel since August, many bulls have been buying with limit orders, below prior lows and scaling in. Every new low has led to a pullback to above the breakout point. This has allowed these bull scalpers to take quick profit on the brief bounce, despite the bear trend.
However, a bear channel is a bear trend, and it is therefore easier to make money selling. But when a channel is tight, stop entry bears are nearly always selling at the low. Since there are pullbacks from every new low, these bears have to sit through a 1- to 3-bar rally and then another new low before they make money. Therefore entering with stops is not the best choice.
But, unfortunately, stop entries are usually the best choice for traders who are starting out. They just have to trade small, and use an appropriate stop above the top of the most recent strong bear breakout.
Limit order bears are selling above the high of the prior bar, and many are taking partial profits below the most recent low. That is exactly where the stop entry bears are entering.
There is no sign of a bottom yet. The next target is the March 18, 2020 pandemic low. That bar reversed up strongly. The bears want to break below that low. The bulls hope that there will again be buyers there. But if there are, and there is a reversal up, it will probably only last a few weeks. The 1st reversal up from a tight bear channel is typically minor.
EURUSD Forex market
EURUSD on weekly chart is reversing down from a wedge top
The EURUSD Forex weekly chart had a bear bar this week. It has been reversing down from a wedge top, and a double top with the February 2018 high. The bears want the selloff to continue down to the bottom of the most recent leg up. That is the November 4 low at 1.16, which is also about a measured move down based on the height of the 8-week trading range.
However, this week reversed up strongly on Friday. The week closed in the middle of the week’s range and above the January 1 low, which was the bottom of the range.
The inability of the bears to get the week to close below the breakout point, increases the chance of a bounce for at least a week. There could be a rally back up to the January 22 lower high over the next couple weeks. If so, the weekly chart will be back to neutral.
Despite the bad close for the bears, this week is a breakout bar. Next week is the follow-through bar. If it is also a bear bar, it will increase the chance of the breakout being successful, especially if it is a big bear bar closing near its low, and below the January 1 low. If it has a small bear body, traders will still expect lower prices, but the bear trend will be somewhat weaker.
However, if next week is a bull bar, traders will wonder if the breakout is failing. A big bull bar closing near its high will increase the chance that the breakout has failed. A bar with a small bull body will increase the chance of the EURUSD going sideways for an additional week. Traders will look at that week for either follow-through selling or a reversal up.
S&P500 Emini futures
Monthly Emini chart has a big bull bar at all-time high
The monthly S&P500 Emini futures chart so far in February has a big bull bar closing near its high at the all-time high. This is after a bear bar in January.
That bear body in a buy climax increased the chance that February would be sideways or down. There is still a lot of time remaining in February, and the candlestick could look very different when the month closes. For example, if there is a reversal down to below the current low of the month, February would end up as sideways or down. That was the most likely outcome when the month began.
Additionally, there would then be a micro double top with the January high on the monthly chart. Many traders would exit longs below February’s low if it closes on its low. It would also be a sell signal bar for a 1- to 3-month pullback.
But if February finishes the month on its high, traders will look for a test of the 4,000 Big Round Number in March or April. While I do not trade calendar patterns, it is worth noting that March and April form the most bullish pair of consecutive months.
Weekly S&P500 Emini futures chart has formed a small double bottom bull flag
The weekly S&P500 Emini futures chart formed a big bull bar this week. It near completely reversed last week’s selloff.
Most institutions follow the Globex chart. On the Globex chart (not shown), there are 3 consecutive outside bars. That is an OOO (outside-outside-outside) Breakout Mode pattern. This week’s candlestick is therefore both a buy signal bar, and a sell signal bar for next week
On the day session chart above, this week is a buy signal bar for next week. The bulls see last week as the 2nd leg down in a micro double bottom, with the bar from 3 weeks earlier. If next week goes above this week’s high, it would trigger a buy signal. Traders would look for a measured move up, based on the height of the January tight trading range. Since the range is 200 points tall, a measured move up would be well above the 4,000 Big Round Number.
However, a tight trading is an area of agreement. Therefore most breakout attempts fail. Furthermore, after there is a breakout, the market tends to get pulled back within 3 to 5 bars into the tight trading range, which traders see as a fair price. Consequently, if the bulls get a rally above 4,000, the January trading range could be the Final Bull Flag. Traders would look for a reversal back down to the bottom of the January range over the following several weeks.
A reversal in a strong bull trend is typically minor
Just like tight trading ranges resist change, so do trends. The Emini weekly chart has been in a strong bull trend for 11 months. Every reversal attempt failed within a few weeks. It was soon followed by a new high in the bull trend.
Traders will continue to expect new highs until there is a clear, strong reversal down. So, even if a break above 4,000 reverses back down to the January Final Flag, the reversal will probably be minor. Traders would look for the selloff to last a few weeks, or for a trading range to form for a couple months, like in September and October. They then would expect another new high.
Daily S&P500 Emini futures market breaking above January trading range
The S&P500 Emini futures market reversed up strongly on the daily chart this week, after selling off sharply twice last week. If a market tries hard to do something 2 or more times and fails, it often then tries the opposite direction. The Emini this week broke above the January trading range to a new all-time high. It also reached a measured move up from the September/October double bottom. A measured move up based on the height of the 5-week trading range is at the 4,000 Big Round Number.
While the Emini will probably trade at least a little higher after this week’s rally, the probability of breaking strongly above 4,000 before there is a 2- to 3-week pullback is still only 50%.
If the bears get a reversal down within the next couple weeks, there will be an expanding triangle top. The 1st 2 highs came on January 8 and January 26. Every expanding triangle top is also a higher high major trend reversal. If the reversal begins with a good sell signal bar and consecutive strong bear bars, the bears would have a 40% chance of a trend reversal on the daily chart.
Possible blow-off top
This week’s rally was strong, and it is coming late in a bull trend. It is similar to the rallies to the September 2 high and the October 12 high. Both of those were blow-off tops (exhaustive buy climaxes) that led to 10% corrections over the following few weeks.
Also, the Emini is still in a bull channel, which has a 75% chance of a bear breakout. But until there are a consecutive strong bear bars, traders will continue to buy every selloff, betting on higher prices.
1st Reversal will probably be minor
If the Emini falls to the start of the November bull channel at 3,500, would that be a major trend reversal? No, that would not be enough. A major trend reversal is a conversion into a bear trend from a bull trend. Even a 10% selloff to 3,500 would still probably only be a leg down in a trading range, and not the start of a bear trend.
The trading range could last a month or two, like in June, 2020 and September through October. The odds would still favor a resumption of the bull trend. But if the trading range lasts about 20 bars, the bears would have a 50% chance of at least a 2nd leg down.
So what is most likely near-term? The same thing that I have been writing every week. While the odds of a 10% correction are increasing, when looking over the next week or so, the odds continue to favor at least slightly higher prices. Markets have inertia. They tend to continue to do what they’ve been doing. If there is a bull trend, the odds always at least slightly favor higher prices.
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Charts use Pacific Standard Time
When I mention time, it is USA Pacific Standard Time (the Emini day session opens at 6:30 am PST, and closes at 1:15 pm PST). You can read background information on the intraday market reports on the Market Update page.