Emini in tradable bull leg to above 2750 in developing trading range
Updated 6:45 a.m.
The Emini gapped up and immediately reversed down with a big bear bar. The bulls created an opening reversal up from above yesterday’s high and kept the gap open. The next bar sold off again. This is an early tight range, but with big bars.
Yesterday’s high is support. Last week’s lower high and the 20 day EMA are resistance. The big reversals down and up, the big bars, and the nearby support and resistance increase the odds of a trading range open and a trading range day. Swing traders will wait for a strong breakout up or down, or for a trading range with either a good buy or sell signal bar before swing trading. The odds are that there will be at least one swing up and one down today.
Pre-Open market analysis
The Emini continued its reversal up from Friday’s low. It should reach last Wednesday’s high within a week. Yesterday was strong enough so that last week’s low will probably lead to new high. It was a capitulation day. The bears gave up.
When they give up, there is usually at least one more leg up. This is because some are still short. They now know that the odds are that last week’s low will hold. These bears are hoping for any dip to allow them to exit with a smaller loss. In addition, the cautious bulls were waiting for evidence that the correction has ended. They got that yesterday. They therefore will be eager to buy a pullback. With both the bulls and bears hoping for a pullback, the odds are that any selloff will form a higher low.
The early February selloff was very strong. Therefore, the odds favor at least a small pullback from around 2725 – 2780. However, the bull trends on the weekly and monthly charts are still intact. Therefore, the bulls will buy any strong selloff. This means that the best the bears will probably get over the next month is a higher low.
Is the daily chart in a trading range, a bear trend, or a bull trend? Yes, yes, yes. However, the odds are that last week’s low will hold and that the Emini will be at a new all-time high within 3 months. It is in a bear trend because there is still a 20% chance of a 20% correction. If it comes, the bear trend will have started with the January high. If there is a higher low and then a new all-time high, traders will say that the bull trend resumed last week. Finally, until the Emini breaks strongly above the January high or below last week’s low, it is still in a trading range.
Since the monthly chart is in a strong bull trend, the odds are against much lower prices. Last week’s low will probably be the final low in the pullback from the all-time high.
Overnight Emini Globex trading
The Emini is up 15 points in the Globex session. It will therefore probably gap above yesterday’s high and the 2700 Big Round Number. The bulls will probably buy any early selloff down to around that support.
The odds are that the rally will reach the February 7 lower high of 2726.25 within a few days. It might get there today. The bears hope the 5 day rally is just a buy vacuum test of that high. They want a double top bear flag on the daily chart and a resumption of the 2 week bear trend. The odds are that the rally will stall there for at least a couple of days. That is also around the 20 day EMA. This means that the Emini will probably begin to go sideways for 2 – 3 days starting today.
Since yesterday’s rally was climactic, there is a 50% chance of follow-through buying in the 1st 2 hours. There is only a 25% chance of a 2nd big bull trend day today. That would also be a strong break above the resistance of the February 7 lower high. In addition, there is a 75% chance of at least a 2 hour swing sideways to down that begins by the end of the 2nd hour.
Yesterday’s setups
Here are several reasonable stop entry setups from yesterday. I sometimes also show limit order entries and entries on the close of bars.
EURUSD testing 1.2500 and top of trading range
The EURUSD daily Forex chart had a big outside up day yesterday. Instead of forming a lower high around a 50% pullback, it is now testing the February 1 lower high.
The EURUSD daily Forex chart is in a month-long trading range within a bull trend. The momentum up over the past 5 days is strong enough so that the bears will need at least a micro double top before getting a reversal.
Despite the strong momentum, the rally is testing the resistance of the January 25 high and the 1.2500 Big Round Number. Not only do they need a breakout above, they need a strong breakout with follow-through. This is because trading ranges resist breaking out.
The bulls know this. Therefore, many bulls will take profits around the top of the range and above. Consequently, most breakouts fail and then reverse. Unless there is enough new buying above the January high to break 100 pips or more above that high, the odds favor this rally failing.
However, yesterday was a big outside up day. The bears wanting a lower high gave up. As a result, they will want at least a micro double top over the next few days before they will sell again. Therefore, traders will buy the 1st reversal down. For example, if tomorrow trades below today’s low, there will probably be more buyers than sellers. Therefore, traders will look to buy a 100 pip selloff today or tomorrow.
Since the chart is at the top of a trading range, the bears will sell. However, they will only scalp until there is at least a micro double top.
Overnight EURUSD Forex trading
The EURUSD 5 minute chart has been in a 50 pip range overnight. It pulled back from a breakout above the 1.2500 resistance and a test of the February 1st lower high. The bears want a double top with that high. This would create a double top lower high major trend reversal sell setup on the daily chart. However, the 5 day rally is strong enough so that most traders expect the 1st reversal down to fail. Hence, the bears will only scalp rallies today.
Unless there is a 100 pip breakout above 1.2500, the bulls will only buy pullbacks. In addition, they will take profits around 1.2500, which is around the February 1 lower high. The odds favor 2 days of sideways trading. This is because yesterday’s strong rally stalled at resistance, but the bears will not hold for a swing trade until there is a micro double top on the daily chart. That would take at least 2 – 3 days.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
After a parabolic wedge bottom, the bulls got a strong reversal to a new high. It was another small pullback bull trend.
The bulls got a strong trend reversal up from a parabolic wedge sell climax. The rally broke above last week’s major lower high. Some bulls will take profits in this area, and the bears might begin to sell again. Yet, the odds are that the bulls will buy any 2 – 5 day selloff, even if it is strong.
Tomorrow is Friday so this week’s high is a magnet. The bulls want a strong buy signal bar on the weekly chart going into next week. The bears want the opposite, but the odds are that the bull trend has resumed.
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.
Traders can see the end of the day bar-by-bar price action report by signing up for free at BrooksPriceAction.com. I talk about the detailed S&P Emini futures price action real-time throughout the day in the BrooksPriceAction.com trading room. We offer a 2 day free trial.
When I mention time, it is USA Pacific Standard Time (the Emini day session opens at 6:30 am PST, and closes at 1:15 pm PST). You can read background information on the intraday market reports on the Intraday Market Update page.
