Emini pullback from Wednesday’s bull breakout
Pre-Open market analysis
The Emini formed a small inside bull day yesterday after Wednesday’s late, strong rally. Yesterday is therefore a Breakout Mode bar on the daily chart. The bulls see it as a 1 day bull flag. However, the bears see it as a sign that Wednesday’s breakout is failing. They, therefore, see it as a sell signal bar. Since it had a bull body and its low was above Tuesday’s high, the odds are better for the bulls.
Wednesday’s rally was strong and it went far above the March high. Furthermore, yesterday was a bull follow-through day. The odds are that today or Monday will trade above Wednesday’s high.
But, the chart is still in a 6 month trading range. Therefore, there is about a 50% chance that the upcoming rally will fail within a few days and begin a 2 – 3 week reversal. However, the breakout was far enough above the March high to make a reversal be a pullback in a bull trend and not a bear trend. The odds favor a new all-time high within a couple months.
Overnight Emini Globex trading
The Emini was in a small trading range yesterday. Since yesterday had a bull body on the daily chart, it is a High 1 bull flag. The odds are that today will trade above yesterday’s high. That will trigger a buy signal on the daily chart. Since the odds are that there will be at least one more leg up on the daily chart, there is an increased chance of a bull trend day today.
Even though Wednesday’s breakout might soon fail, yesterday’s bull body makes a big bear day unlikely today. Today should be either a 2nd trading range day or a bull trend day.
Today is Friday so weekly support and resistance can be important. There are no nearby significant targets. The bulls simply will try to make the week close near its high, and the bears will try to put a tail on the top of this week’s candle stick.
EURUSD Forex outside down day but still in triangle
Not only is the EURUSD daily Forex chart in a triangle, there are important targets 300 pips above and below. The chart will probably test both 1.20 and 1.12 over the next year. It is now deciding which it will test 1st. It is perfectly balanced and the odds for the next move are 50% for up and for down.
Because the chart is at the apex of the triangle, the legs up and down are lasting only 2 – 3 days. Traders will continue to bet on reversals until there is a strong breakout above 1.18 or below 1.15.
Overnight EURUSD Forex trading
The EURUSD 5 minute chart sold off yesterday. However, it is now in the bottom half of the month-long triangle. Therefore, traders will look for the selloff to stall today and reverse up tomorrow.
Everyone knows that a breakout attempt is likely within a couple of weeks. However, just look at the chart over the past month. Every leg up and down reversed within 3 days. Day traders will bet that this pattern will continue until it clearly has changed.
There have been many 50 pip breakouts up and down over the past month. Yet, because of the lack of follow-through, day traders have rarely been able to make more than 30 pips on a trade. They will continue to expect to scalp again today. Despite the 120 pip selloff from yesterday’s high, they will both buy and sell today.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini today reversed Wednesday’s buy climax. I have been writing for the past week that the Emini would probably pull back 50 – 100 points over the next few weeks. This is likely the start of that process. Since today was a sell climax, Monday will probably have at least a couple of hours of sideways to up trading that begins by the end of the 2nd hour.
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.