Market Overview: Weekend Market Update
The Emini has rallied to the top of the yearlong bull channel on the weekly chart. After 6 consecutive bull bars, a 1 – 2 week pullback will probably begin in November.
The bond futures market triggered a parabolic wedge buy climax sell signal on the monthly chart in November. It will probably go sideways for several months.
The EURUSD Forex market is trying to reverse up from a head and shoulders bottom (higher low major trend reversal) on the weekly chart. A 2nd leg up is likely after the October wedge bottom,
30 year Treasury bond Futures market:
Weak breakout below an ii sell signal bar on monthly chart
The 30 year Treasury bond futures contract in November on the monthly chart broke below the October low. This means that the breakout above the August high might be failing.
August was a big bull trend bar and it broke above a 10 year nested wedge top. September did not confirm the breakout. Instead it was a big bear bar and an inside bar. An inside bar means that its high was below the August high and its low was above the August low.
October was then inside of September. Consecutive inside bars is a breakout mode pattern. Climaxes often reverse when there is an ii Breakout Mode pattern.
November broke below the October low and that triggered the sell signal. November is therefore the entry bar. But instead of a big bear bar closing on its low, it is currently trading up in the middle of its range. Furthermore, it is back at the October low. This is not a strong bear trend reversal.
Problems with the ii top
There are 2 additional problems with this reversal down. First, both inside bars had prominent tails and did not close near their lows. This is a sign of hesitation. It represents uncertainty. Uncertainty typically results in several sideways bar, giving traders time to make up their minds about the direction of the next move.
The 2nd problem is that the 2019 parabolic wedge buy climax was in a tight bull channel. That rarely quickly reverses into a bear trend. Much more often, the chart goes sideways for 5 – 10 bars before the next leg up or down begins.
Both of these factors make a trading range likely for 5 – 10 months. Is November the bottom of the range? Ten bars is a long time. November will probably not be the bottom.
Possible Final Bull Flag
What happens if there is a trading range? It is in a bull trend, and a bull breakout usually is more likely.
But the context weakens that argument. Here, a nested wedge has been forming for 10 years. August is a breakout above that wedge. So far, the breakout is failing.
Since a nested wedge top is an unusually reliable pattern, traders should expect a reversal down. The ii after the August failed breakout is a good candidate for the start of the reversal down from the high.
But if the monthly chart goes sideways for a year, the bulls might get one more brief new high. It will probably fail and the trading range would then be the Final Bull Flag. Traders should still expect a 20 year bear trend in bonds.
I have said many times that a 30 year bull trend might take years to reverse. Nothing has changed. Traders should conclude that either August will be the top or that there will be one more brief new high for the final top. Americans will not allow interest rates to fall to zero, which means that bonds should not go much higher.
November might become a High 1 bull flag buy signal bar
If November closes near its high, it will be a High 1 bull flag buy signal bar. If December goes above the November high, it would trigger the buy signal.
But a reversal down after a buy climax usually has a 2nd leg sideways to down. Consequently, a rally above the November high would probably only last a month or two. Traders will sell above the November and August highs, betting against another strong leg up.
They believe that the strong bull trend is evolving into a trading range. They will sell rallies, like above the November or August highs. They will also buy selloffs, like below the October low.
EURUSD weekly Forex chart:
High 2 bull flag in 4 month trading range
The EURUSD Forex market on the weekly chart has been in a bear trend for 2 years and in a trading range for 4 months. Last week was a big outside down week, but this week did not have follow-through selling. It is a reversal up from a higher low after a small 2 legged pullback from the October high.
What is more likely? Is the bear trend resuming or will the bulls get a 2nd leg sideways to up after the October rally? The 3 week October rally was the strongest rally on the weekly chart in the entire bear trend. Furthermore, it followed a nested wedge bottom. Traders should expect a 2nd leg up.
Minor buy signal
This week is a buy signal bar for a higher low reversal. Since the legs up and down on the weekly chart only lasted a few bars, the reversal up will probably be minor. However, it might be major on the daily chart. A minor reversal means that a rally would more likely be a leg in a trading range than the start of a bull trend.
Remember, markets have inertia. They resist change. The EURUSD weekly chart has been sideways for 4 months. Traders will look to buy selloffs and sell rallies.
The current selloff is now in the buy zone, which is the bottom third of the 4 month trading range. This week is a buy signal bar for next week. If the EURUSD reverses up, traders will expect a test of resistance. That is the October high and the top of the 14 month bear trend line. Both are around 1.12.
If a rally continues, the next target is the June major lower high just above 1.14. If there are consecutive closes above that high, traders will conclude that the bear trend has ended. They would then think that the chart is now either simply in a trading range or the early stage of a bull trend.
Monthly chart has tight bear channel
There have not been consecutive bull trend bars on the monthly chart (not shown) since the bear trend began almost 2 years ago. This is a strong bear trend. Since the bear channel on the monthly chart is tight, the 1st rally on that chart will probably be minor. That means it could last a few months. Traders would then look for a test back down.
A 2nd reversal up at that point would have a better chance of leading to a major trend reversal up and a test of the start of the bear channel. That is the September 2018 high just above 1.18.
There would also be a higher low major trend reversal on the monthly chart. A major reversal usually results in a trading range, but there is a 40% chance of it growing into a bull trend. That means a test of the February 2018 high above 1.2550.
Monthly S&P500 Emini futures chart:
Late in oo buy signal
The monthly S&P500 Emini futures chart is still rallying from the June oo buy signal. There were consecutive outside bars (outside-outside, or oo) in June. That is a breakout mode pattern.
Since the monthly chart has been in a bull trend, those bars formed an oo bull flag. July triggered the buy signal by going above the June high. The minimum objective was 3 months of sideways to up trading. But it is important to note that the breakout usually does not last much more than about 5 bars. November is now the 5th month. So far, there is no sign of a top.
At the moment, November is a bull trend bar trading at the high of the month. If it looks like this at the end of the month, traders will expect at least slightly higher prices in December. The next target is the top of the 12 year bull channel at around 3,175. There are different channels on the weekly and daily charts and those have lower targets.
Next pullback likely to be minor
If November reverses down and closes on its low, November would be a sell signal bar for December. It would be a reversal down from the 3rd leg up from the Christmas 2018 low and therefore a small wedge top.
But the yearlong bull trend has been strong. If there is a reversal down in the coming months, it will probably be similar to the 3 minor reversals in 2019. Each lasted only 1 or 2 bars (months).
This would be the 4th pullback. Trends tend to weaken as they age. Therefore, the next reversal might last a couple months.
However, the best the bears can probably get over the next few months is a test of the August and October lows at around 2800. They would then need at least a few sideways months before they would have a reasonable chance of a bigger reversal down. Therefore, traders should expect more sideways to up trading for at least a couple months.
Weekly S&P500 Emini futures chart:
November buy climax at top of yearlong bull channel
The weekly S&P500 Emini futures chart is particularly interesting. This week was the 6th consecutive bull trend bar. That is unusual, especially late in a bull trend. Traders should expect a 1 – 2 week pullback to begin by the end of November.
However, there have been 6 bull bars with each low above the low of the prior week. There is a 7 bar bull micro channel, which means that the bulls have been eager. They therefore would like an opportunity to finally buy below the low of the prior week. Consequently, the next pullback will probably only last 1 – 2 weeks. After that, at a minimum, traders should expect a test of the high.
Near the top of the yearlong bull channel
Where will this rally end? The Emini on Friday closed slightly above the top of the yearlong bull channel. Tests of resistance are rarely perfect. The momentum up is strong enough for traders to expect at least a slightly bigger break above the top of the bull channel.
But, channels reliably contain trends. The bulls look to take profits and the bears start to sell around the top of the bull channel. At the bottom of the channel (the bull trend line), the bears will take profits and the bulls will buy again. Traders should therefore expect a 1 – 2 week pullback to start within a couple weeks.
Bull breakout above the bull channel is unlikely
The Emini obviously can break far above the bull channel and begin an even stronger bull trend. But that happens only 25% of the time. Most the time, traders should think of a bull channel as a bear flag.
There is a 75% chance of an eventual break below the bottom of the channel on the weekly chart. That is currently around 2930. Once that happens, the bull trend usually evolves into a trading range.
How does the reversal down occur? Usually there is a break above the top of the bull channel. Then, within about 5 bars (weeks), the breakout fails. Traders look for a reversal down to the bottom of the channel (the bull trend line).
The bulls will want another leg up from the bull trend line. However, the bears will want a break below the bull trend line and the end of the bull trend. That means either the start of a trading range or a bear trend. A test of the bottom of the channel is probably more than a month away.
Daily S&P500 Emini futures chart:
Breakout above 6 day tight trading range
The daily S&P500 Emini futures chart did something unusual this week. Through Thursday, there were 5 consecutive bull trend bars in a tight trading range. When the bulls are so bullish, the bars typically go up and not sideways.
On Friday, the Emini finally broke above the tight trading range. Six consecutive bull bars is fairly unusual, but there is no sign of a top. Traders therefore belief that the rally will continue at least a little longer. For example, the top of the yearlong bull channel on the weekly chart is now around 3125. The top of the 2 month bull channel on the daily chart is just below 3150. A measured move up from the August/October bottom is around 3200, which is just above the top of the bull channel on the monthly chart.
Is a 5 – 8% pullback due?
There were 3 small reversal attempts over the past 10 days. Each failed and formed a High 1 bull flag. Instead of a wedge top, the rally since the October low has been in a Small Pullback Bull Trend. That can last a long time.
However, look at the rallies in February, April, July, and September. Each was in a tight bull channel that lasted a month or so. Each was then followed by a 5 – 8% correction. The tops of the rallies created the top of the bull channel on the weekly chart.
The current rally looks similar to the earlier rallies and the Emini is once again near the top of the weekly bull channel. Will there be a 5 – 8% correction this time? Eventually, yes, but the weekly chart has had 6 consecutive bull trend bars. Therefore, traders will probably buy the 1st 1 – 2 week selloff.
The bears will likely need at least a small double top before then can get a 5 – 8% selloff to the bottom of the bull channel. Traders should expect higher prices, even if there is a 2 week selloff first.
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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.