Emini triggered weekly buy signal but still likely bear rally
Pre-Open market analysis
Last week broke above and closed above the high of the week before. That triggered a buy signal on the weekly chart. However, there is resistance around the February and October lows and the 20 day EMA. Furthermore, there is still a gap below that February low. The bulls need to break above the resistance this week.
A reversal up from a sell climax often reaches the start of the sell climax. That is the December 12 lower high, just below 2700.
Unless the bulls break strongly above all of this resistance, the rally will likely form a lower high. The odds favor a new low within a couple months.
Overnight Emini Globex trading
The Emini is unchanged and it traded in a tight range overnight. Because it is at resistance on the daily chart, it might go sideways for a few days before deciding whether to break above or reverse down. Furthermore, most of the trading over the past week has been in tight trading ranges. This increases the chance of mostly sideways trading again today.
However, the daily ranges have been big for the past month. Consequently, even a sideways day will probably have at least one big swing.
EURUSD daily Forex chart in Breakout Mode and breakout likely in January
The EURUSD daily Forex chart has been rallying for 3 days. Furthermore, 2 months is about as long as trading ranges have lasted over the past year. Consequently, the chart will probably break out of its range this month. However, until there is a breakout, there is no breakout. Despite the 3 day rally, it is equally likely that the breakout will be down as up.
The bulls see the rally as a higher low after the December 14 double bottom higher low major trend reversal. However, the bears have a double top on January 19. The rally was a wedge, which typically has a 2nd leg down. Therefore, they expect the 3 day rally to fail today and tomorrow, and then resume last week’s big one day selloff.
None of this matters. Traders have been unwilling to hold positions for more than 2 – 3 days. This is because reversals are more common than breakouts in a trading range. But, traders should expect a breakout this month. Once it comes, traders will be willing to hold positions for several weeks instead of just days.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart rallied 50 pips overnight. This is the 3rd day up, and it is now near the top of the trading range.
Traders know that a breakout from the range is likely this month. They are therefore willing to hold onto positions a little longer on tests of the top or bottom of the range. But, they will still be quick to reverse if there is a reversal because all prior legs up and down failed.
While the 50 pip rally is good for the bulls, it is now within 50 pips of the top of the range. Bulls will begin to take profits and bears will begin to look to sell.
If the market begins to go sideways, traders will begin to look for a swing down. Yet, there is an increased chance of a strong breakout within the next few weeks. The initial target will be a 200 pip measured move based on the height of the 2 month range.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini rallied in a Small Pullback Bull Trend to close just above the February bottom of the 2018 trading range. On December 24 at the sell climax low, I said that this was likely. The sell climax was likely to lead to a rally that would be strong enough to make traders wonder if the bear had ended.
But, as strong as the rally has been, it will still probably fail around 2,600. There is a 60% chance of a test of the December low before a test of the September high
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.