- Market Overview: Weekend Market Analysis
- EURUSD Forex market
- S&P500 Emini futures
- The Monthly Emini chart has gap up in April
- The Weekly S&P500 Emini futures chart in strong Small Pullback Bull Trend
- The Daily S&P500 Emini futures chart broke above 4,000 Big Round Number
Market Overview: Weekend Market Analysis
The SP500 Emini futures market gapped up on the monthly chart, and broke above the 4,000 Big Round Number. The bulls need follow-through buying next week, to increase the chance that the rally will continue up to measured move targets at around 4,200. Because the Emini gapped up and is overbought on the daily, weekly, and monthly charts, and at a major Big Round Number, there can be a pullback at any time. The bears need at least a couple big bear days before traders will expect more than a shallow pullback.
The EURUSD Forex monthly chart is continuing its reversal down from a yearlong wedge top. It is now in last year’s trading range, and near the bottom of the final leg up of the wedge. This is a support zone, and it increases the chance of a bounce for a couple weeks in April.
EURUSD Forex market
The EURUSD monthly chart has sell climax in support zone
- Turning down from a wedge rally to a lower high double top with the February 2018 high.
- Selloff from a wedge top typically has at least a couple legs down.
- First target is bottom of final leg up in the wedge. That is the November low at 1.16.
- Next target is the March 2020 high at 1.15. That is the breakout point for last summer’s rally. Markets usually have a pullback to the breakout point.
- The test can reverse up from a little above or below the breakout point. Most traders want current selloff to get closer to the breakout point, before being confident that the bull trend will resume.
- March was a big bar and therefore climactic. If enough bears use this as an opportunity to take some windfall profits, could go sideways to up for a several weeks.
- Back in late 2020 trading range, so might go sideways again here, before reaching 1.16.
- Traders will sell 1st brief rally since 2nd leg down likely. Also, selloff should reach November low at 1.60.
- Traders expect a 2- to 3-month trading range to begin either in April or May.
- Less likely, the bull trend will resume in April, or the EURUSD will collapse to March 2020 low without a bounce.
S&P500 Emini futures
The Monthly Emini chart has gap up in April
Breakout above 4,000 Big Round Number
- Finally broke above 4,000 Big Round Number.
- This is only the 4th time in the 100-year history of the S&P when it broke above a multiple of 1,000.
- When the S&P breaks above a Big Round Number or any resistance, it often soon goes sideways. The sideways move can last a few bars or many bars.
- The breakout above 1,000 came in 1998 (not shown). The stock market entered a big trading range, and did not get above 2,000 until 2014. It then went sideways for 2 years.
- It broke above 3,000 in 2019 and went sideways for a year.
- While the current breakout could continue up for many months, the Emini will probably be sideways around 4,000 for many months. It could get stuck here for more than a year.
Gap up on monthly chart
- April gapped above the March high. All gaps on the monthly chart are small. Most small gaps close before the end of the month, like in December 2020.
- If gap does not close by end of month, it usually closes within a few months, like the gaps in November 2019 and August 2020.
Targets for bulls and bears
- Bulls want the gap to be a measuring gap. They hope that gap will remain open, and lead to a 700-point measured move up, based on the height of the wedge that began in September.
- They additionally want a 1,200 measured move up based on the height of the 2018/2020 expanding triangle. While the Emini will eventually get there (and to 10,000 and 100,000!), it will probably have several pullbacks first.
- More likely, there will be a 2-month pullback soon, instead of a quick measured move up.
- There were tails on the top of January and February. They were caused by reversals as the bars were forming.
- March did not reverse, but 2-bar reversals are common. If April were to selloff, it would form a 2-bar reversal with March.
- That would create a micro wedge top with the January and February highs, which would increase the chance of a pullback in May.
- There has only been a single pullback since the pandemic low. Only one bar (September) fell below the low of the prior bar (month).
- Pullbacks tend to be more complex as trends mature. Next pullback will probably last at least a couple months.
- Most recent bars on the monthly chart have been 200 – 500 points tall. A 2-bar pullback will probably be 10 – 20%.
- There is currently only a 20% chance that the 1st pullback will be 35%, like last year’s February/March pullback.
The Weekly S&P500 Emini futures chart in strong Small Pullback Bull Trend
- The past 2 weeks were big bull bars closing on their highs.
- As strong as the bull trend has been for the past year, this is an acceleration up.
- There are 2 ways to draw the channel. The Emini is breaking above the longer-term bull channel (red line), and it is just below the channel based on the November 9/February 16 highs (green line).
- Next magnet is the measured move up to 4,195, based on the January 29/March 4 double bottom bull flag.
- Above that is a measured move at 4,244, based on the gap created by the September 25 breakout test of the June 5 high.
- A reversal down from a Small Pullback Bull Trend is typically minor. That means a couple legs sideways to down. But a pullback could last a couple months, like in September and October last year.
- 1st target for the bears is the January/March double bottom at 3,700.
- If the pullback continues down, the next target is the November 10 low at 3,500 at the start of the tight bull channel.
Possible blow-off top (exhaustive buy climax)
- Small Pullback Bull Trend that has lasted 50 bars, and begins to accelerate up, often reverses down from a blow-off top. That is an exhaustive buy climax.
- Stop for the bulls is far below. Easiest way to reduce risk is to take some profits. If enough bulls take profits, there is often a pullback with a couple legs down.
- Currently no sign of a top, but at top of bull channel.
- Until there is a strong reversal down, higher prices are likely.
- Most likely will begin to pull back soon.
- Alternatively, will break strongly to the upside. Then, 75% chance the profit taking would soon begin.
What could cause a strong breakout above the bull channel?
- Late in a bull channel, bears expect the bulls to take profits. Bears begin to short.
- If bulls do not take profits and instead continue to buy, channel continues up.
- At some point, weak bears become worried that this will be one of the 25% of cases where there is a successful breakout into a stronger bull trend.
- They buy back their shorts in a panic. This creates a sharp rally above the bull channel.
- 75% chance that a bull breakout above a bull channel, will begin to turn down within about 5 bars.
- This is because bulls see it as a great chance to take windfall profits, and they know the breakout will probably be brief, and then reverse down.
- Also, the strong bears bet that the breakout will fail. They scale into shorts, and they are never going to buy them back until they are profitable.
- With no weak bears left to buy back shorts, and with bulls starting to sell, there can be a sharp reversal down, like in early 2018.
- 1st reversal down from an exhaustive buy climax typically has at least 2 legs sideways to down. Sideways is more likely. The pullback will probably be 10%, but it might be 20%.
- Traders then decide if the pullback is a bull flag, or if it will become a lower high major trend reversal.
The Daily S&P500 Emini futures chart broke above 4,000 Big Round Number
- Breaking above March 17/March 26 double top, and above 4,000 Big Round Number.
- Bulls need follow-through buying on Monday to increase chance of successful breakout.
- But streak of 6 consecutive bull bars is unusual, and therefore climactic. Increases the chance of a bear bar early next week.
- Bulls might have to wait until after a 1- to 2-day pullback to get follow-through buying.
- 1st target is measured move up to 4,104, based on height of double top.
- That is also around top of bull channel.
- Next target is measured move up to 4,195, based on height of January 29/March 4 double bottom.
- Bears want Thursday’s breakout to fail. Need consecutive strong bear bars before traders will conclude that there might be a pullback down to the March 25 higher low.
- Big pullbacks and many big bear bars since start of year. Entire rally since early January looks like a bull leg in what will become a trading range. Once there is a pullback, it should test the bottom of the likely developing trading range at 3,700.
- Bulls hoping that Thursday’s strong breakout will convert the 3-month weak bull trend into a strong bull trend. If they get a series of bull bars, and a tight bull channel over the next couple weeks, traders will look for a 250-point measured move up, based on the January to March trading range.
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When I mention time, it is USA Pacific Time (the Emini day session opens at 6:30 am PT, and closes at 1:15 pm PT). You can read background information on the intraday market reports on the Market Update page.
Can you please analyse a situation with stocks (VIAC, DISCA, VIPS) suffered due to Archegos Capital Management issue?
Why block trades in buy trends almost doesn’t affect prices, and in this case they caused an extreme downfall? Did the exchange won because of this fall in prices? Or who did won in this situation?
What to expect next in these stocks? Will they return to their previous levels?
Thank you in advance!
I believe much of the selloff is due to Wall Street sharks smelling blood in the water. Goldman Sachs and Morgan Stanley closed out Archegos’s positions at the top. That means lots of people on Wall St. knew there was a big problem with a big hedge fund.
Once that happens, there is tremendous opportunity. If you are a fund and you know that another fund is going to have its positions liquidated by its bankers at any price, you are confident that the stock will fall. Many firms specialize in shorting. I believe they were selling aggressively until they suspected Archegos had nothing left. The result was what we saw.
I don’t know if you were in the chat room a few weeks ago before the collapse. I showed a chart of VIAC and said that it was in a blow-off top. A big company like that cannot rally in such an extreme parabola without attracting a lot of profit taking.
That profit taking killed Archegos. The news reported that some of Archegos’s positions were leveraged as much as 20 to 1.
When there is profit taking, there is going to be at least a 5% pullback. But for Archegos, a 5% pullback is a 100% loss because of their leverage. A 10% drop means that Archegos losses everything and owes an additional amount equal to what they already lost.
The bank knows that Archegos will quickly run out of money, and then the bank will be responsible. I believe Credit Suisse and Nomura were two of Archegos’s bankers, and that they did not exit quickly, like GS and MS. I think I saw an estimate that both lost $2 to 10 billion by exiting too slowly. Slate summarized what happened.
The short sellers know that the forced liquidation is about over. What will they do? They will begin to buy back their shorts. With no one shorting, the selling will stop. But if you are an investor, you see this as high risk. You can make more money investing elsewhere. That reduces the number of buyers.
What typically follows is a trading range. It will have big rallies, but the buyers are traders. They will buy pullbacks and not as the stock is going up. Also, they will take quick profits. The shorts will come back on rallies expecting at least a 2nd leg down.
These stocks will probably be sideways for many months. They currently have a 25% chance of getting back to the old highs this year. It might take many years.
Thank you, Al
Is the 3/4 low rather than the 1/29/ low a valid MM level?
Double bottoms are rarely perfect. I always choose the higher low for the 1st target. If the rally goes beyond the 1st target, I then look at a measured move based on the lower of the 2 lows.
Both are valid and all measured moves are approximate, as are all support and resistance levels. I think of lines as being drawn with paint brushes instead of with Sharpies, although sometimes the market reverses precisely at a magnet.
Hi everyone! I dont know if I’m right or not, but – for me – in the daily chart of Emini i see a wedge with three legs. Yep, have targets above but in every new high bulls are taking profit and bear know that, so bears sell too and them can make money. Like Al said “Entire rally since early January looks like a bull leg in what will become a trading range.”
Nothing is 100% certain, but I am still prefer think this is a fail BO, but lets wait the FT on monday!
Does anyone have any comments to add?
Every bull trend is constantly forming wedge tops, but most either have a bad shape or the bull channel is too tight. The result is that the probability of a major reversal is small.
As you know, I think the entire 2021 rally and maybe the rally from November 10 will end up as a bull leg in a big trading range. But which top will be the final one? That is the problem. Most tops fail. As I wrote above, a reversal is usually not high probability until it is half over.
Yes, I totally agree with you…
I dont sell if monday be a bear bar, the rally from 3/25 was very strong, probably the first reversal is minor, but agressive bears who sell in the prior highs and scaling in can make money, so probability be a transition to a TR.
And i agree the leg from november 2020 maybe be tested, is where the channel began…
Obs: I am so grateful for your answer! I study your method since May/2020 (when i bought the book Trends) and finished it in December, that’s when I bought your course and I continue studying every day. in fact i’m at 47C Trading in Trading Ranges.
Thank you for your time to help others peolpe who want to be a professional trader!
I started learning Al’s trading since last year (Feb 2020). I purchased his course and also subscribed trading room. I learnt much from him but in fact I still didn’t fully understand well.
I then started reading his books since Feb 2021. I have just completed the second book (Trading Range) just now. I could say the books are so lengthy but this is because Al tries to explain everything in detail to let beginner to understand. I have cleared some of my misconception through reading his book.
Would also like to thank you Al for teaching us.