Emini 3 day island bottom but weak trend reversal up
Pre-Open market analysis
The Emini gapped up yesterday. Since it gapped down 3 days earlier, the gap up created a 3 day island bottom. In addition, it gapped down on Friday. It therefore has a 1 day island bottom nested within a 3 day island bottom.
While island tops and bottoms are not major reversal setups, this one is after a sell climax. In addition, it is at support at the bottom of a yearlong trading range. Consequently, it has a better chance of being a major bottom.
But, the bulls need several strong bull bars before traders will believe that this is the low for the next several months. Without that, the odds are that the reversal up will fail this week and the Emini will fall below last week’s low.
Yesterday did not have a big bull body and it did not close on its high. If today is also not a strong bull day, the 3 week selloff will probably continue down to the October or February lows.
Overnight Emini Globex trading
The Emini is down 12 points in the Globex session. Yesterday was a Low 2 sell signal bar for a micro double top with Wednesday’s high. Since yesterday had a bull body, the setup is weak. That reduces the chance of a big bear day today.
Because yesterday’s rally was not strong, there is not much momentum up. Therefore, the odds are against a big bull day.
Finally, the Emini has been in a small trading range for 4 days. Since a big day up or down is unlikely, today will probably be another trading range day in the developing tight range.
EURUSD Forex chart has head and shoulders bottom in bear trend channel
The EURUSD daily Forex chart has been forming lower highs and lows since September 24. It is therefore in a bear channel. If today closes near its high, it would be a buy signal bar for tomorrow. The 5 day selloff would then be a micro wedge bull flag after the 2 week rally. Furthermore, a rally from here would be a higher low major trend reversal. In addition, that would create a head and shoulders bottom.
The weekly chart is at support and has a yearlong wedge bull flag. Therefore, the context is good for the 2 month bear trend to end around the current level. Also, the daily chart is at the bottom of a 6 month trading range. Most trading range breakouts fail. Consequently, the odds favor a reversal up for several weeks, whether or not there is a small break below the November 12 low first.
The bears want to keep making lower highs and lows. That would continue the 2 month bear trend channel. In addition, the current selloff is from a double top bear flag with the July and September highs. There is therefore a 40% chance of a 500 pip measured move down to 1.08 over the next few months. But, that means there is a 60% chance of a reversal up before then.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart reversed up 30 pips overnight from just above the November 1 low. That is a small reversal. In addition, the rally had mostly overlapping bars with small bodies and prominent tails. This is not what the bulls need when they are trying to create a bottom. Consequently, today so far is not a credible bottom. There has not been strong buying at this price. If it does not materialize today or tomorrow, the 6 day selloff will continue to below 1.300.
Because the overnight price action has been quiet, the odds are that today will be a small trading range day. At a minimum, the bulls want the day to close near its high. Today would then be a good buy signal bar for tomorrow. As long as the bears do not get a strong downside breakout, the bulls will buy selloffs all day.
Since the bears want the day to end with a close below the open, they will sell rallies. With traders buying low and selling high, today will probably remain in a trading range.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini had an early rally, but then entered a trading range. After a midday double bottom, the Emini had a weak rally and it closed on its high. This was the 2nd consecutive bull bar on the daily chart, and the bulls still have their island bottom. They need more and bigger bull bars on the daily chart before traders will believe that the 3 day island bottom will lead to a reversal.
While the bears have a Low 2 sell signal for tomorrow, today had a bull body and it closed on its high. This is a low probability sell signal bar. This is a low probability sell signal. Since the daily chart sold off in a climactic way in November, there is an increased chance of a sharp reversal up.
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.
At the time you said 28 was a H2 buy. In the previous 8 bar microchannel, I don’t believe any bar traded above the high of the prior bar (except maybe 27 by a tick). Is the H2 based on 2 thrusts down with a failed bull BO at bar 24?
27 went above 26 so that was a High 1, and that made 28 a High 2 bull flag. It was also a small wedge bull flag. On a smaller time frame, it is usually clearer, but I only look at the 5 minute chart and I can infer what is going on with the smaller time frames.
The important point for me is that the selloff stalled several times. That made it more likely a bull flag than the start of a bear trend. I therefore wanted to find a bull buy signal bar.
I said that 28 was only a doji. Since that is a weak buy signal bar, especially in a tight bear channel, the reversal up was likely to be minor.