Market Overview: Weekend Market Update
The Emini gapped up on the monthly chart and the daily chart is in a Small Pullback Bull Trend. It will probably work higher for at least another month.
Bitcoin reversed up strongly 2 weeks ago but had a bear follow-through bar on the weekly chart this week. There will probably be buyers below this week’s low. However, Bitcoin will likely be in a trading range for many months.
The EURUSD weekly Forex chart formed a High 1 bull flag buy signal this week. It will probably trade up next week. Furthermore, there is a 50% chance that it will test the June high within a couple months.
Bitcoin weekly chart: Bear rally or bull trend resumption?
The Bitcoin weekly chart broke strongly below a 3 month triangle in September. In July and August, I said that the bulls wanted to buy below the June buy climax low, not at 10,000. I therefore said that the 10,000 support would not hold and that there would be a test down to below 7,500. The September selloff was that test.
When there is a breakout below a triangle, there typically is a pullback to the apex of the triangle. At that point, traders decide if the bear trend will resume or if the pullback in fact is the start of a bull trend reversal.
Part of the decision involves an assessment of the strength of the rally back to the triangle. The rally 2 weeks ago on the daily chart was surprisingly strong. A bull Surprise Bar typically has at least a small 2nd leg up. Consequently, the bulls will probably buy this week’s selloff. There will likely be buyers below this week’s low. Traders should expect at least a test of the top of the rally from 2 weeks ago.
If there is a strong break above that high, the October low will probably remain the low for the next few months. Also, the bulls would have a reasonable chance of the rally continuing up to any of the lower highs since the June top.
Bear case is currently not strong
The bears hope that this week will be a credible sell signal bar. They want the rally from 2 weeks ago to be a bull trap and just a test of the apex of the triangle. They know that there will probably soon be a test of the October high. If they can get a reversal down at that point, they will have a micro double top. That would give them a better chance of breaking below the October low and down to the 6,000 bottom of the 2018 trading range.
Confusion is a hallmark of a trading range
What is likely over the next few weeks? Bitcoin will probably trade below this week’s low. It might go sideways to down for several weeks like it did after the December 23, 2018 reversal up. However, there is enough confusion and uncertainty to limit the upside and downside for a couple months and maybe many months.
When traders do not expect a big rally or a big selloff, they take quick profits. The result is usually a trading range. The bottom of the range is now around the October low. However, it might expand down to 6,000, which was the bottom of the 2018 range. While 10,000 might be the top, the top more likely will be around the June through August highs at around 12,000.
Trading range more likely than bull trend
What is most likely to happen? A mess. That means a trading range, and it could be taller and last longer than what traders want. The lack of a 2nd consecutive big bull trend bar this week created uncertainty. Compare it to the follow-through bars of other strong rallies on the chart. This week’s hesitation reduces the chance that this rally will be like the others.
There is currently a 50% chance that the bottom of the range will be around 6,000. The bulls only have a 30% chance that this rally is the start of a bull trend up to 20,000. Any rally will probably have a hard time breaking above 12,000 where Bitcoin has reversed down repeatedly over the past 2 years. I think that the 2017 blow-off top was also simply a failed breakout above 12,000.
The daily chart will probably test the high from 2 weeks ago. The test could happen next week. But there could be a deeper pullback that could last a few weeks first.
If there is a strong reversal down from a micro double top with the October high, traders will look for a deeper pullback, like down to the 6,000 bottom of the 2018 trading range. Alternatively, if the rally breaks strongly above the high, traders will expect a test of the September or August highs at around 12,000. In either case, Bitcoin will probably not be able to break below 6,000 or above 12,000 for at least 6 months.
It is too early to conclude that the low is in and that the bull trend is resuming. A trading range is always more common than a trend. The daily chart went sideways just above 10,000 for several months. If it gets back above 10,000, there is a good chance that it will go sideways again for at least several weeks. Traders should expect a trading range over the next 6 – 12 months. The bottom will probably be between 6,000 and 7,500 and the top will be between 10,000 and 12,000.
EURUSD weekly Forex chart:
High 1 bull flag with room above to bear trend line
The EURUSD weekly Forex chart rallied strongly for 3 weeks, but pulled back last week. This past week formed a bull inside bar. It is therefore a High 1 bull flag buy signal bar for next week.
After the strong rally, the bulls expect at least a small 2nd leg up. An obvious target is the bear trend line that began in September 2018. It is currently at 1.1214, which is only 40 pips above this week’s high.
A more important target is the June major lower high of 1.1413. If the bulls can get a couple consecutive closes above that high, traders will conclude that the bear trend has converted into a trading range and possibly a bull trend.
EURUSD monthly Forex chart has minor reversal up
The monthly chart (I posted it last weekend) has not had 2 consecutive strong bull bars since the selloff began in February 2018. However, the selloff is still holding above the 2017 low. Since that was the bottom of a strong yearlong rally, the 21 month selloff is still probably a bull flag.
But the bear channel has been tight. When that is the case, any reversal attempt will likely be minor. That means that it could last a few bars (months), but the EURUSD would probably then test back down.
The bulls typically need at least a small double bottom before they can convert a bear trend into a bull trend (a major trend reversal). Until there is a double bottom, traders will assume that the rally is minor. They will see it as either a bull leg in the bear trend or in a developing trading range.
Monthly S&P500 Emini futures chart:
Emini triggered monthly outside up buy signal with gap above October high
The monthly S&P500 Emini futures chart in October traded below the September low and then above its high. October was therefore an outside up bar, which is a sign of strong bulls. Furthermore, it closed above the September high. That is even better for the bulls. Finally, it closed above the July all-time high. Therefore, October had the all-time highest close on the monthly chart. Traders should expect higher prices over the next few months.
Can November form a sell signal bar?
An outside up bar in a bull trend is a buy signal bar. The buy signal triggered on Friday when the Emini gapped above the October high. But if November then reverses down, November would become a sell signal bar for December.
Gaps on the monthly chart rarely stay open. Consequently, the Emini will probably trade back below the October high at some point this month. The gap might take 5 – 10 bars (months) to close.
It is important to note that the monthly and weekly charts are strongly bullish. If November forms a sell signal bar on the monthly chart, there will probably be buyers below. Traders should expect higher prices for at least another month or two.
Weekly S&P500 Emini futures chart:
Breakout to new high, testing top of expanding triangle
The weekly S&P500 Emini futures chart had its 4th consecutive bull trend bar this week. It closed on its high and at a new all-time weekly high. Traders will buy the 1st reversal down. They expect higher prices over the coming weeks.
There is a 22 month expanding triangle top on the weekly (and monthly) chart. This week broke slightly above the upper line. While the line might cause some hesitation, it is not strong enough resistance to abruptly stop the rally. The bears will need at least a micro double top before traders will look for shorts on the weekly chart. Traders expect the Emini to trade sideways to up for the next several weeks.
Daily S&P500 Emini futures chart:
Small Pullback Bull Trend
The daily S&P500 Emini futures chart gapped up to a new all-time high on Friday. In addition, it closed on its high. The October rally is accelerating now that the Emini is breaking above the 22 month trading range.
Every pullback for the past month lasted only a day or two. This is a Small Pullback Bull Trend. Higher prices over the next few weeks.
Bull trends do not go straight up forever. There will always be profit-taking that will cause a pullback. Sometimes the selloff can be strong enough to reverse the trend.
However, this rally is accelerating up in a parabolic curve. The bears have to stop it from continuing up before they can make it reverse down. That is a process that takes time. At a minimum, the bears typically need at least a micro double top, which takes a few days to develop.
But even that is usually not enough to reverse a bull trend. The bulls will buy the 1st reversal down, even if it is surprisingly strong. Most tops require a double top and not just a micro double top. The double top usually takes weeks to form. Consequently, the downside risk over the next few weeks is small.
What happens if the Emini gaps down some day next week? Yes, there would be an island top, but most island tops are minor reversal patterns. Traders should expect the Emini to be higher than it is now in a month and probably in 2 months.
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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.
Al-what data feed do you use for bitcoin charts? coinbase? CME?
That is the CME cash index.
Thank you Al!
Your weekly analysis gives me a clear picture of the current market environment. It clears all of my confusion. I love it! You can not predict the future, (nobody can,) but this is the best crystal ball you can get.
thanks Al for the insight!
On the weekly EURUSD chart, if you buy above the H1 signal bar, what would a reasonable stop loss be? Is a tight stop just below the signal bar reasonable or would you place it below the entire bull leg, i.e. just below the 10/4/19 low of 1.0879?
There are 2 choices, below the buy signal bar or below the bottom of the leg up. The tighter stop has lower probability and less risk (better risk/reward) and the wider stop has higher probability but more risk. That is always the trade-off. Traders who do not like risk choose the tighter stop. If they get stopped out, they buy again on the next buy signal.
Since a bear channel typically has to convert into a trading range before reversing into a bull trend, this rally is probably minor. That generates confusion and it makes traders tend to take quick profits. Therefore a rally from here might just last a week or two and then pull back.
If it reverses within a few weeks, it will probably run the stops below this week’s low. Therefore many traders will exit below a bear bar instead of continuing to rely on their original stop.
Also, many traders will take relatively quick profits if the rally does not explode to the upside, which it probably will not do. In a trading range, which this probably is, it is usually better to not trade like you would in a trend where you use wide stops and allow pullbacks.
Thank you very much, Al!
Hi Al , based on the daily and weekly chart , this is the third push up since beginning of the year. Every BO falls below the BO point, what is the chance of this push up a exhaustion gap rather than measuring GAP ?
Please correct me if I am wrong.
Strong trends constantly form wedges, yet the trend can go very far. The daily chart is a Small Pullback Bull Trend, which will always have wedge tops. Until it converts into a weaker trend or a trading range, the odds are high that the Emini will continue higher.
I think that the gap up on the monthly chart is important. If the Emini keeps working higher for the next couple weeks, the odds of several months of higher prices will go up.
Thank you very much , Al