Emini consolidating after either October bear breakout or bear trap
Pre-Open market analysis
The Emini continued its 3 day trading range yesterday. But, it closed near its low and it was the 2nd consecutive bear inside bar. This is an ii sell signal for today.
The market is near last year’s close and that was a magnet for the 1st 6 months. Therefore, there will probably be at least a small 2nd leg down to test that level. Today might be the start of that test.
What follows the test will be important. It will tell us if last week’s selloff was a spike in a spike and channel bear trend, or simply a sharp pullback to support. Will the Emini test the February low or the September high?
We should find out within a couple of weeks. If there is a selloff that reverses up from last year’s close, the odds will favor a new all-time high or at least a retracement of half of last week’s selloff. Alternatively, if the selloff just keeps dropping, then the Emini might test the February low.
Overnight Emini Globex trading
The Emini is up 17 points in the Globex market. While yesterday closed on its low and is a good sell signal bar, traders still do not know if last week’s selloff was a bear trap. They therefore are willing to buy a strong breakout above a 2 day bear flag.
The past 3 days have been sideways. This is a breakout mode pattern. Day traders will continue to look for reversals, even knowing that a breakout is likely within a few days. Until there is a breakout, there is no breakout.
Because the daily range is still big, the legs up and down have been swing trades. Today will probably be similar to the past few days and have several swings up and down.
Since the past 4 days have been bear days on the daily chart, if today trades above yesterday’s high, traders will expect the breakout to fail. They will therefore look for a reversal down. However, experienced traders know that the 4 day selloff might be a bear trap. Consequently, they will not hesitate to swing trade their longs if there is a strong rally.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart so far today is within yesterday’s range. Yesterday was also an inside day. Consecutive inside days is an ii pattern, which is a Breakout Mode setup.
Because it follows a 4 day rally, the breakout is more likely to be up. However, if the bull breakout reverses down after a day or two, there would be a parabolic wedge lower high. This would probably lead to a 100 – 150 pip test down to the October 9 high or low.
The daily chart has been in a trading range for 6 months. The legs up and down reversed every 2 – 3 weeks. This rally will therefore probably end within a week.
August reversed up strongly after a strong breakout below the range. Furthermore, the weekly and monthly charts are bullish. Consequently, there will probably ultimately be a successful breakout above the range within a few months.
But, traders make more money betting on reversals than on breakouts until there is a clear strong breakout. As a result, they will begin to look for a 1 – 2 week selloff. The current leg up has lasted only 6 days, which is brief. Traders expect another few days up to around 1.1650.
They will then look for a reversal bar. If they get one, it would be a sell signal bar for a parabolic wedge rally. They would then sell, looking for a week or two down.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart has been in a 40 pip range for 4 days. That is a long time for this tight of a range. Therefore, traders expect a breakout this week. Up is more likely than down. However, longer the trading range lasts, the more neutral it becomes.
Until there is a breakout, day traders will continue to scalp for 10 – 20 pips. Because a breakout up or down is likely today or tomorrow, they will be ready to switch to taking bigger profits. Since a breakout up or down will probably reverse within a few days, day traders will have a hard time making more than 20 – 40 pips on the breakout.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini broke above the bear ii today and formed a strong Bull Trend From The Open. This is unsustainable and therefore climactic. Consequently, the odds favor at least a couple hours of sideways to down trading that starts by the end of the 2nd hour tomorrow.
That does not mean a bear trend. It simply means a pause in the bull trend that started today. Since today was so strong and closed on its high, there is an increased chance of a gap up tomorrow and at least a moderate bull trend day. While a bear trend day is always possible, it is unlikely after today’s tight bull channel. The best the bears can probably get tomorrow is a swing down and a trading range.
As strong as today was, the bulls need several strong trend days before traders conclude that there will not be a 2nd leg down from last week’s selloff.
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.