Emini near all-time high with 5 trading days to go in December

Al added a few comments to report

Market Overview: Weekend Market Analysis

The SP500 Emini near all-time high with 5 trading days left in December. Bulls want month to close near the high and above November high which would result in an outside bull bar. If that happens, it increases the odds of a gap up on the daily, weekly, monthly and yearly chart on January 3^rd which may not have happened before in history. Bears hope for a double top with November 22^nd or a wedge top if the Emini rallies for a few weeks.

The EURUSD Forex is in a 5-week tight trading range. This week’s candlestick is a bull signal bar for next week. The bulls need follow-through buying next week and a strong breakout above the tight trading range. They need to create consecutive bull bars with closes far above the top of the 5-week tight trading range before traders will conclude that a bull trend has begun. If there is a bear breakout, the tight trading range likely is the final bear flag before a reversal lasting a couple of months begins.

EURUSD Forex market

The EURUSD weekly chart

• This week’s candlestick on the weekly EURUSD Forex chart was a bull inside bar closing near the upper half of the week’s range. However, it had a conspicuous tail above which means the bulls are not as strong as they could have been. It is a bull signal bar for next week.
• The bears were not able to get follow-through selling following last week’s strong bear signal bar.
• Bears want a breakout below the tight trading range from a double top bear flag (November 30 and December 16) and then a strong break below the June 19^th, 2020 higher low followed by a continuation of the measured move down which began in October. 
• This week’s candlestick is the 5^th consecutive sideways week on the weekly chart. If there is a break below the 5-week trading range, odds are it might be the final flag of the bear leg. 
• Since this week is a bull bar, it is a weak sell signal bar for the bears. It reduces the chance that the EURUSD going far below it without another pullback.
• The current tight trading range is an area of balance between the bulls and bears.
• The bulls want follow-through buying next week and a strong breakout above the tight trading range. They need to get big bull bars closing on their highs and closing far above the top of the five-week tight trading range before traders will conclude that a bull trend has begun.
• Bulls want these five sideways bars to be a base after the two big bear bars in early November. They want those two bars to be an exhaustive end of the yearlong selloff. 
• Al has been saying for a few weeks that there should be a sideways to up move lasting at least a couple of months starting from where the EURUSD is now or from slightly lower. The EURUSD is in the middle of a 7-year trading range. Legs rarely go straight from the top to the bottom without some confusion, which is a hallmark of a trading range. This year has been clearly bearish. Clarity does not last forever in trading ranges.
• Al has also said that currencies have an increased chance of reversing in early January. The current bear trend began on January 6^th of this year. The bears hope that the yearlong bear trend is a resumption of the bear trend that began in 2008. More likely, the seven-year trading range will continue.
• The 2021 selloff is still more likely a pullback from the 2020 rally than a resumption of the bear trend that began 14 years ago. 
• A couple of months of sideways to up trading is likely before there is a breakout below the bottom of the 7-year range if there is going to be a breakout below the bottom.
• There is only a 30% chance that this selloff will continue down with only brief pullbacks and then break strongly below the 7-year trading range.

The EURUSD daily chart

• The daily chart has been in a very tight trading range for 5 weeks. It is a breakout mode situation.
• That means there is about 50% chance of a successful bull breakout and a 50% chance of a successful bear breakout.
• It also means that there is a 50% chance that the first breakout up or down will fail and reverse.
• Because the tight trading range is coming in a bear trend, even though the market is in breakout mode, it’s slightly more likely that there will be a bear breakout. 
• However, if there is a bear breakout, the tight trading range may be the final bear flag followed by a reversal up within a few weeks and then the start of a rally that lasts at least a couple of months probably from around June 19^th, 2020 low. 
• Al has been saying that trend reversals in the currency have an increased chance of happening in January. The current bear trend on the daily chart began on January 6^th, 2021. Traders might be waiting for January before they begin a reversal up.
• Al has been saying that because the EURUSD has been in a trading range for 7 years, the odds of more reversals are greater than those of a breakout of the 7-year range. 
• The current leg down has lasted a year. While it could last longer, it will probably reverse up for at least a couple of months before breaking below last year’s low and the 2017 low at the bottom of the 7-year range.
• There’s only a 30% chance that the small pullback bear trend will continue down to last year’s low without at least a rally lasting a couple of months or more.

S&P500 Emini futures

The Monthly Emini chart

• The December monthly Emini candlestick currently is a bull bar trading near all-time high with 5 trading days left for month.
• When December went below the November low, it triggered a Low 1 sell signal. That sell signal is in effect unless the market goes above the November high. If December remains below November, it will increase the chances of lower prices in January especially if there is a large tail above or a bear body.
• With 5 more trading days left for December, the November high is within reach next week. A single strong bull trend day is enough to reach it. If December is an outside up month on the monthly chart, it would increase the chances of higher prices in January. 
• However, it would be the third leg up where the first legs up were August and October therefore a micro wedge. Since the bull trend is extreme, traders are looking for reasons to take some profits. A micro wedge is often a trigger for profit-taking. That would probably lead to a couple of bars sideways to down. 
• The target would be the bottom of the outside bar in October. The bears would like to break below that and drive the market down for a measured move. However, it’s more likely that there will be a bounce from that from a double bottom if the market gets there in the next few months.
• If instead the December close is near the high but does not go above the November high, it would then be a high 1 buy signal for January. Odds will then slightly favor a test above December high to see if there are more buyers or sellers above.
• Less likely, December will have a bear body. So, next week is important as it will influence how traders behave in early January.
• Can this rally continue up throughout 2022? That is less likely. It is overextended and there is a likely micro wedge forming.
• Therefore, the bull trend will probably transition into a trading range for at least a couple of months.
• For example, if the market were to get down to the October low, then the trading range would have begun in August and there would be a five or six- or seven-month trading range on the monthly chart.
• At that point, the bulls will try to get a resumption up and the bears will try to get a bigger reversal down possibly from a micro double top.
• Al has said that the bull trend from the pandemic crash has been in a very tight bull channel. The first reversal down will probably be minor even if it lasts a few months and not continue straight down into a bear trend. Even if it sells off for 10 to 20% correction, that would still only be a pullback on the monthly chart even though it could be a bear trend on the daily chart.

The Weekly S&P500 Emini futures chart

• This week’s Emini weekly candlestick was an outside bull bar closing near the high. It traded below last week’s low to test the bull trend line and reversed up from a double bottom bull flag with Dec 3 low.
• This week is a bull signal bar for next week. Next week may even gap up on the weekly chart to an all-time high.
• The past 8 weeks have been a tight trading range. A trading range late in a trend often is a final bull flag. Therefore, a rally from here may fail within 3- to 5-week, possibly at the top of the bull channel and possibly around the 5000 big round Number.
• Therefore, if the market does go up over the next several weeks, it probably will not go up very far before there is a reversal down to the bottom of the bull flag, which is the December low.
• A tight trading range is a breakout mode pattern and has a 50-50% chance of a successful bull or bear breakout. It also has a 50% chance that the first breakout up or down will fail and reverse within a couple of bars. Because it’s in a strong bull trend, a bull breakout is slightly more likely than a bear breakout.  
• The bears want a double top with November 22, even if the Emini makes a new high first. They want any breakout above the tight trading range to fail and then a test of the December low followed by a measured move down which will take them to the Oct low.
• However, the bears have not been able to create follow-through selling and consecutive bear bars closing near their lows. They need to do more to convince traders that a deeper pullback may be developing.
• Al has said that the Emini has been in a strong bull trend since the pandemic crash. There have been a few times when the bears got the probability of a correction up to 50%, but never more. The probability of higher prices has been between 50 and 60% during this entire bull trend. It has never been below 50%. That continues to be true.
• The strong selloffs, like in September in 2020 and again in 2021, pushed the probability for the bears up to 50%. But every prior reversal has failed, and the bears never had better than a 50% chance of a trend reversal.
• For now, odds slightly favor sideways to up slightly more.

The Daily S&P500 Emini futures chart

• This week reversed up strongly from a test of the bottom of the bull channel and the 100-day moving average. It formed a higher low double bottom bull flag with the December 3 low. The rally up has been strong enough for traders to expect at least a small second leg sideways to up.
• The bulls want the bull trend to resume and for December to close at a new all-time high. That would be above the November high, and it would turn December into an outside up bar on the monthly chart.
• The bears are hoping that this week’s strong rally was simply a buy vacuum test of the 8-week tight trading range high. They want a micro double top with December 16, and a larger wedge top with November 22.
• They then want a close below December 3 low by the end of the month. If it does, December will be a bear bar on the monthly chart, and that would increase the chances of January trading lower.
• However, the bears have not been able to create consecutive strong bear bars closing near their lows. Every pullback has been bought by the bulls since the pandemic crash.
• If there is some profit-taking over the next few days, it probably will only be minor. The odds are that the Emini is going to make a new all-time high within the next few weeks.
• There is better than a 50% chance that it will make a new high next week. That is true even if it pulls back for a couple of days early in the week.
• Al said that the bulls want the year to end at the high. That would be a statement of how strong the bulls have been over the past two years period with the last trading day of the year also being the last day of the week, and the last day of the month. If December were to close at the high, and then if January gapped up to a new all-time high, there would be a gap up on the daily, weekly, monthly, and yearly charts. That probably has never happened in the history of the stock market.
• However, if there is a gap up traders will be looking for a possible reversal down from a new high and from the top of the channel drawn from the September 2^nd high to the November 22^nd high.
• There would be 3 pushes up and a reversal at that point would be from a wedge which often attracts profit takers and would probably lead to a couple of legs sideways to down lasting a few months.
• The bears will try to break below the December low which is a neckline of a double top with the November 22^nd high and with whatever high we get over the next few weeks.
• Bears then want a measured move down from below that December 3^rd low which would take them down to the October 3^rd low which was the start of the wedge rally and which is a common magnet after a wedge reversal.
• Can the bull trend continue straight up for a measured move based upon the height of the two-month trading range which would take them to around 5000?
• There is always such a possibility. It would then be a parabolic buy climax and odds of profit-taking would increase after that.
• More likely, traders will either take profits around the November 22^nd high which would create a double top or more likely from above the November high which would create a wedge top with the September 2^nd high and the November 22^nd high.
• Therefore, there probably will be at least a couple of months of profit-taking starting sometime early next year.
• Al has said that before any bar closes on any timeframe, there is often a very sharp move in either direction which changes the appearance of that bar. Right now, the yearly chart (not shown) is a big bull bar closing on its high. If December were to sell off strongly in the final week of the year, the yearly chart would not be nearly as strong and will have a prominent tail on top. Also, neither would the monthly chart.
• So sometime right before the year closes which means sometime next week, there is the possibility for a big move in either direction. However, up is more likely than down.
• Traders should expect a new all-time high. There is about a 50% chance that it will come next week, and that December will be an outside up month. That would result in the year closing on its high, which would increase the chances of higher prices in January.
• It would also increase the chances of a gap up in early January.
• But whether there is a new high or not, there should be a couple of months of profit-taking beginning within the next few months.

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