Market Overview: Weekend Market Analysis
SP500 Emini weak pullback phase on daily chart following a parabolic wedge buy climax at a trend channel line. Pullback from a parabolic wedge buy climax typically has at least a small 2nd sideways to down leg. The bulls want a test of the trend extreme.
The EURUSD Forex is testing the June 10, 2020 high breakout point around 1.14. Next week should trade at least slightly lower. The bulls will need at least a strong bull reversal bar or consecutive bull bars closing near its high before traders will begin looking for a reversal up.
EURUSD Forex market
The EURUSD weekly chart
- This week’s candlestick on the weekly EURUSD Forex chart was a bear bar closing near its low below March 2020 high and just above the June 2020 high.
- Al has been saying for weeks the most important support below is at the breakout points of last year’s strong rally, and the EURUSD will probably dip below one or both before the 6-month bear trend ends. They are the March 9, 2020 high at around 1.15 and June 10, 2020 high at around 1.14.
- Since this week closed as a strong bear bar, odds are the EURUSD should trade at least slightly lower next week.
- The bears want a strong break below June 2020 high and a measured move down. They need several strong bear bars closing near its low to convince traders that the move is underway.
- The EURUSD has been in a trading range for 7 years. When there is a trading range, traders look for reversals. When a market is in a trading range and it gets near support or resistance, it usually goes beyond it before reversing. Therefore, the EURUSD would likely fall below 1.14 before we see credible reversal attempts by the bulls.
- The 2021 selloff is still more likely a pullback from the 2020 rally than a bear trend.
- Therefore, traders should expect a test back up before there is a break below last year’s low.
- It should occur from either around the current level or from slightly below 1.14.
- The move down since September is in a tight bear channel which means strong selling. The bulls will need at least a strong bull reversal bar or consecutive bull bars closing near its high before traders will begin looking for a reversal up.
- There is always at least a 40% chance that the opposite of what is likely will happen. Consequently, there is at least a 40% chance that the selloff will continue down to near the bottom of the 7-year trading range.
The EURUSD daily chart
- The EURUSD turned down from a double top bear flag with November 3 high on Wednesday closing as a strong bear bar below March 2020 high. The bears got follow-through selling on Thursday and a weaker bear doji on Friday.
- Al has said that the tight trading range for 8 days since Nov was a sign that the EURUSD is neutral but in Breakout Mode. Since the tight trading range is in a bear trend, the odds slightly favor a bear breakout. This is especially true since the March 9, 2020 high is an important magnet below.
- Since Friday was a bear doji following 2 strong bear bars, it is a weak buy signal bar for a strong reversal up.
- Traders will need to see several big bull bars before they conclude that a rally has begun. Until then, the odds slightly favor a test below 1.14 before the reversal up will begin.
S&P500 Emini futures
The Monthly Emini chart
- The November monthly Emini candlestick currently is a bull bar with a small tail above. It so far is a strong breakout above the Sept-Oct OO (outside-outside) pattern.
- The bulls want a test of the trend channel line around 4820 and a measured move to 4934.50 based on the height of the OO pattern (which is the height of the October bar).
- September was the third time that a bear bar interrupted the strong rally on the monthly chart. A third reversal attempt has a higher probability of leading to a 2- to 3-bar sideways to down pullback.
- Al has said that most prior bear bars in buy climaxes on the monthly chart led to a 2nd bear bar within a bar or two. That means the bears hope that November rallies and then reverses down at the end of the month to close below the open of the month. Therefore, the bears will try to create a bear bar in November. If they are successful, it will probably lead to lower prices in December.
- Will that happen? With October being surprisingly strong, November will likely be another bull bar. Traders will begin to wonder if the Emini will reach the 5,000 Big Round Number before there is more than a one-month reversal.
- How much higher can the buy climax continue? Climactic rallies often last far longer than what might appear reasonable.
- An OO pattern is a pause and a brief area of agreement. It is usually an expanding triangle on a smaller time frame.
- A breakout from a triangle usually tests back to the triangle, where the bulls and bears last agreed on a fair price.
- Therefore, there is an increased chance that it will be the Final Bull Flag before there is a correction lasting at least a few bars (months).
- However, the breakout above the OO often lasts several bars before there is a reversal.
- For now, the odds slightly favor sideways to up in November.
- However, there is always a bear case, and it always has at least a 40% chance of happening.
- But even if it does, the best the bears will probably get is 2 to 3 months of sideways to down trading before the bulls try for another leg up.
The Weekly S&P500 Emini futures chart
- This week’s Emini weekly candlestick was an inside bear doji closing at the upper third of its range with a long tail below. It ended the 5-bull bar streak but failed to trade below the prior week’s low.
- A bear doji closing in the upper third of its range is a weak sell signal bar for a strong reversal down. This is especially true as it follows a 5-bar bull microchannel which means strong bulls.
- The bears want a higher high major trend reversal with the September high. The bears would need a surprisingly strong bear bar or a micro double top before traders would look for a reversal.
- Al has said that there is a seasonal strong tendency to rally from November 11 to December 5. However, it is very difficult to construct a profitable strategy using them, but they are factors to consider. Traders looking for a big selloff in a bull trend, during a seasonally bullish time, need very strong bear bars before shorting.
- The next target for the bulls is 4802.00. That is the measured move target based on the height of the 4-month trading range (Jul-Oct).
- Should the Emini reach there, it would result in a trend channel line overshoot, which usually leads to a pullback into the channel after that.
- So far, the Small Pullback Bull Trend is still intact. A Small Pullback Bull Trend ends with a big pullback. That means a pullback that is at least 50% bigger than the biggest prior pullback. Here, the trend will remain intact until there is at least a 15% correction.
- Once it ends, the bull trend typically converts into a trading range. Initially, the odds are that it will be a bull flag. Traders should expect the trend to resume. If it does, it is usually a weaker bull trend. If the trading range lasts 20 or more bars, the probability of a reversal into a bear trend begins to get close to 50%.
- For now, odds slightly favor sideways to up for November unless the bears can create consecutive strong bear bars closing near its low.
The Daily S&P500 Emini futures chart
- The Emini candlesticks from Monday to Wednesday were bear bars but all had prominent tails below. Thursday was a bear inside bar therefore Breakout Mode and Friday broke above it and closed as a bull bar with a small tail above.
- Al has said that because the bull trend has been strong, this reversal down is probably minor. That means it should last only a few days before the bulls buy again.
- The 5 consecutive bear bars were enough selling to usually lead to a 2nd leg sideways to down. A parabolic wedge buy climax typically also has at least a small 2nd leg sideways to down. Consequently, even if the bulls buy early next week, the reversal up will probably only last few days.
- With the bulls looking to buy the selloff and the bears looking to sell the 1st bounce, the Emini will probably be mostly sideways for a few days. With the buy climax on the daily chart being as extreme as it has been, the Emini could enter a trading range for a couple weeks.
- The 4-day selloff came after a strong rally on the daily chart. This creates a Big Up, Big Down, Big Confusion pattern, which typically leads to a trading range. Therefore, there is an increased chance of sideways trading for a few days.
- Is this the high of the year? It might be, but there have been many other attempts at a bear trend reversal and all have failed. Therefore, the odds continue to favor higher prices.
- The bears need more strong bear bars before traders will conclude that a correction is underway. Traders will continue to bet on new highs until there is a clear, strong reversal down.
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