Dow 20,000 Trump rally buy climax?
The Emini began with a selloff from near yesterday’s high and then a rally from above yesterday’s low. Furthermore, it is also in the middle of a 5 week trading range. In addition, Friday was a Big Down, Big Up day. Hence, this is a trading range open.
While everyone knows that the Emini will probably break out soon, this early trading range price action increases the chances of another trading range day. Until there is a strong breakout up or down, with consecutive big trend bars, the odds favor more trading range price action.
Pre-Open Market Analysis
The Dow has repeatedly tried to break above the 20,000 Big Round Number. Yet is has failed. As a result, at some point soon, traders will decide there are not enough buyers at this price. Therefore, the market might begin to probe down instead of up.
Since the momentum up on the weekly chart is strong, the bulls will buy the selloff. Hence, the odds favor a new high. This is true whether or not there is a pullback to below the top of the August trading range first. Furthermore, if there is a new high this week, the odds are that it be limited. The breakout would probably soon reverse down and close the gap above the August trading range. This is what typically happens when a gap forms late in a trend. Hence, the odds are this trend will do the same.
Start of correction in the banks?
Major banks sold off strongly on Friday. Since they led the rally, they might also lead the 100 point Emini pullback to around 2180. The bears want follow-through selling in the financials this week. Therefore, that would probably make it likely that the Emini will correct down 4 – 5% by the end of February.
Since most deep pullbacks begin with a big bear bar, traders will be ready for a big bear trend day this week. Therefore, a strong bear trend bar would likely lead to at least 2 legs down. If there is good follow-through selling after the 1st big bear day, the odds would then favor a pullback to 2180.
Yet a strong bear breakout that leads to a strong bull follow-through bar would again shift the odds in favor of a new high over the next couple of weeks. The odds of a pullback are increasing. Yet, the bears need one or more strong bear trend days before traders believe the bulls have given up.
Overnight Emini Globex trading
The Emini has been in a trading range overnight. Yet, it is up 3.50 because of a rally over the past 2 hours. While the daily chart has been in a tight trading range for a month, the past 10 days have closed above the daily moving average. As a result, the odds still favor a bull breakout.
Yet, a trading range late in a trend usually becomes the Final Bull Flag. While the bears want a double top, the odds still favor one more test up and a move above Dow 20,000 this week or next. The bears need a big bear trend bar closing far below the daily moving average. Without that, the odds still favor a bull breakout.
EURUSD Forex Market Trading Strategies
The weekly EURUSD chart has had 4 consecutive bull trend bars. Furthermore, each has closed above its midpoint. In addition, this reversal up is a 2nd entry buy after a failed breakout below a yearlong trading range. Yet, the bulls do not yet have a big bull trend bar. Since traders want to see one or more big bull bars before concluding that the bulls are in control, if one begins to form, the EURUSD could reverse up quickly.
Without a strong bull reversal, traders believe that there will be at least one more leg down. Because the context is good for the bulls, as are 4 bull bars, traders will be quick to buy if a big bull trend bar begins this week. Without it, traders will assume that the 4 week rally was just a bear flag. If the bulls do not get a breakout soon, the bears will rigger the break below the 4 week bear flag. Furthermore, if there is a big bear trend bar this week, it would increase the odds of a move down to par (1.0000).
Overnight EURUSD Forex trading
While the EURUSD weekly chart has had 4 consecutive bull trend bars, the daily chart does not have consecutive big bull trend bars. In addition, it has had 2 legs up from the wedge bottom. As a result, the bulls met their minimum goal. Without a strong bull breakout above the bear flag, the odds favor a test down.
The bulls now hope for a small double bottom and then a bigger two legged rally. In addition, they want the rally to get above lower highs. That would end the bear trend on the daily chart and create a trading range.
Yet, the rally was weak. Therefore the odds favor a test back down. The bears need to break strongly below last Wednesday’s 1.0453 minor higher low. If they get it, they will then try to break to a new low and then down to par (1.0000). While the odds favor at test down to 1.0450 this week, trading ranges resist breaking out. Therefore, there probably will be buyers there and the trading range will probably continue.
The overnight selloff was weak. It is therefore still a pullback in a bull channel on the 60 minute chart. The rally since Wednesday has had 2 legs up. The odds favor one more push up to a wedge top on the 60 minute chart before the test down on the daily chart.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Today was another small doji day in the middle of a month long trading range. Because only 1 day in the past 2 months closed below the daily moving average, the odds still favor a bull breakout. Yet, because the range is late in a bull trend, the odds are that the breakout will not go far before failing.
See the weekly update for a discussion of the price action on the weekly candlestick chart and for what to expect going into next week.