Emini bulls need follow-through buying after breakout
Pre-Open market analysis
The Emini was in a Spike and Channel Bear Trend on Friday after Thursday’s gap up to a new high. A gap up to a new high usually leads to at least a couple days of a pause. This is even more likely because of the uncertainty about Wednesday’s FOMC announcement. Because Friday closed on its low, it is a sell signal on the daily chart for today. If the bears get additional selling this week, this week will be a bear bar and a weekly sell signal bar for next week.
A strong trend up or down is unlikely today. However, if there is a gap down, the bears would have a 2 day island top. But, most island top reversals are minor. The odds favor trading range trading for the next few days.
Overnight Emini Globex trading
The Emini is down 4 points in the Globex session. It therefore might gap down below Friday’s low, which would create a 2 day island top. Since most small gaps close in the 1st hour, that is what would be likely today.
Because the daily chart has a strong sell signal bar and the breakout above the January high might fail, Friday might be the high for the next several weeks. If so, there would be an increased chance of bear trend days going forward. With the uncertainty over Wednesday’s FOMC announcement, the Emini will probably be mostly sideways until the report.
A big bull trend day is unlikely after Friday’s strong bear day. However, if the gap stays open for the 1st 90 minutes, the day will probably be a bear trend day.
Friday sold off in a tight bear channel. A bear channel is a bull flag, and therefore there is usually a breakout above the channel. But, there is often a breakout below the channel 1st. Consequently, if today gaps down, it will likely break below Friday’s channel. Day traders would then watch for an early reversal up.
Today is unlikely to be a big bull trend day. The start of the bear channel is a magnet, and the channel usually evolves into a trading range. Therefore, if there is a rally, it will probably extend to above 2941 and today will likely be a trading range day.
EURUSD Forex parabolic rally at top of 5 month trading range
The EURUSD daily Forex chart has rallied strongly for 6 weeks. But, it is now at the top of its 5 month trading range. Furthermore, the 3 week rally has had 3 small legs up in a tight bull channel. That is a parabolic wedge buy climax at resistance.
Typically, the chart sells off for a couple small legs over the next week or so and tests the beginning of the channel. That is the September 10 low, just above 1.15.
It is important to note that most reversals over the past 5 months began with micro double tops or bottoms. Therefore, that is likely here. Consequently, the bulls will probably trigger their bull flag buy signal tomorrow by going above today’s high. However, the rally will probably fail within a couple days, forming a micro double top with Friday’s high. Wednesday’s FOMC announcement could be the catalyst for the minor reversal down.
While the daily chart has been in a trading range for 5 months, it is now likely also in a bull trend. Most trading range breakouts fail. Therefore, a pullback this week is more likely than a bull breakout. Because the daily chart is now in a bull trend, bull surprises are more likely. Traders need to be ready for a bull breakout above the June 14 high at any time.
Overnight EURUSD Forex trading
The EURUSD 5 minute chart has been sideways in an 80 pip range for 2 days. After rallying 50 pips at the start of the European session, the chart has been in a tight range for 5 hours. The fight now is over the close of the day. The bulls want today to close on its high. This would create a stronger buy signal bar for tomorrow. However, the bears want a weak close. While the chance of a successful breakout above the June 14 high will be greater if today closes on its high, the odds still favor a micro double top with Friday’s high. Therefore, day traders will sell rallies.
Since Friday was not a strong sell setup on the daily chart, the bulls will buy reversals up from around Friday’s low. Since there is a buy climax and a pullback is likely this week, they will scalp for 10 – 20 pips. With bulls and bears scalping, today will probably continue the 5 hour trading range, although the range will probably get bigger at some point today.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
After gapping down and forming a 2 day island top, the Emini sold off in a weak trend for 90 minutes. It then had a weak rally from a double bottom higher low major trend reversal. While today was a bull reversal day, it was more of a trading range day.
The bulls want a gap up tomorrow, which would form a 1 day island bottom. That would erase the significance of the 2 day island top. Even if they get it, or if they simply close the gap above yesterday’s high, the Emini will probably be quiet ahead of Wednesday’s 11 a.m. PST FOMC announcement.
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.