Sell in May and go away, expecting 5 percent correction
Today opened with a pair of bear bars. Yet, last week’s high was the April high. Since April was a small bull flag, its high is a magnet. In addition, the bulls tried to reverse up on the 3rd bar, but the low was not at major support, like the moving average. Therefore these facts create confusion. Since confusion is a hallmark of a trading range, the odds favor a trading range open for he 1st hour or two.
If today is going to be a trend day, the odds favor a bull trend because the momentum up over the past week has been strong. Additionally, the April high and all-time high are magnets above. Yet, today’s open is weak. Furthermore, the follow-through after last week’s gaps up has been bad. Therefore, the odds are against a strong bull trend day.
Since the odds favor a test above the April high and the momentum up over the past week has been reasonable, the odds are against a strong bear trend day as well. This is a trading range open and it reduces the chances of a strong trend day up or down today. The Emini is now deciding whether the 1st 2 – 3 hour swing will be up or down.
Pre-Open market analysis
The Emini is testing the all-time high. Yet, the weekly chart has an extreme buy climax. This will be the 25th week without a pullback to the weekly moving average. Because that is extremely rare, it is unsustainable. It is therefore an extreme buy climax. I discussed this many times over the past month. There is a 70% chance of a reversal down to the weekly moving average within the next couple of months. Furthermore, there is a 60% chance that the reversal will begin with 3 weeks.
While the daily chart is in a bull trend, the weekly chart’s buy climax is so extreme that it dominates everything else. The odds of much higher prices from here and a rally lasting more than a few weeks is only 30%. Yet, the momentum up over the past week was strong. In addition, April was a small bull flag on the monthly chart. The odds are that May will trade above April’s high. This would therefore be a monthly buy signal. Yet, the breakout will probably reverse down soon.
Overnight Emini Globex trading
The Emini is up 6 points in the Globex session. It is therefore trying to break above the 3 day small bull flag. In addition, it is trying to break above the April high. Consequently, there is an increased chance of a bull trend day today.
The odds favor slightly higher prices. But, whether or not there is a new all-time high within the next couple of weeks, the odds are that the Emini will soon turn down for at least a month or two before the bulls will buy aggressively again.
EURUSD Forex market trading strategies
The daily EURUSD Forex chart has been in a tight range for 6 days. T this is a weak breakout above a 6 month range. Furthermore, most breakouts fail. Therefore, this breakout will probably fail and the trading range will continue.
In addition, even if the bulls get a measured move up from their head and shoulders bottom, the rally would still be a bull leg in a 2 year range. Hence, there is no sign that there will be a breakout of the 2 year range. Because it is below the monthly moving average, the odds still favor a bear breakout and a test of par within a year or two.
There is an adage among traders that says a small trading range just above a big trading range will reverse into the range. This means that a breakout that immediately enters a tight trading range is weak. Hence it is weak and likely to fail. Yet, the momentum up for the past 3 weeks is strong. Consequently, the bulls will probably get at least an additional small leg up after last week’s big gap up.
Overnight EURUSD Forex trading
The 6 day trading range is a bull flag on the 240 minute chart. The EURUSD pulled back to about halfway down from Friday’s rally. In addition, that rally has resumed up about 30 pips overnight. Because this range is a bull flag, the odds favor a bull breakout. Bulls who bought for a swing trade up have their stops below Friday’s low.
The bears hope that Friday was simply a buy vacuum test of the April 25 tight trading range high. Since Friday’s low is the neck line of the developing double top, the bears need a break below Friday’s low. IF they get it, the odds would shift in favor of the bears. Traders would look for a measured move down based on the height of the 6 day range. This would therefore be a test of last week’s gap up.
The EURUSD Forex market is in a 6 day trading range. In addition, that range is trying to break above a 6 month range. Furthermore, it is in the middle of a 2 year range. Finally, every strong leg up and down for 2 years has reversed. This is therefore likely to continue. There is no evidence that there will be a success breakout up or down anytime soon. Every strong breakout of a smaller range will simply be a leg within a larger range.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini had a bull swing, but closed back near the open. It therefore formed a doji day on the daily chart. The odds are that it will trade above the April high this week. This is because April is a buy signal bar on the monthly chart. Yet, it is a High 1 bull flag after a buy climax and at resistance. The odds favor a reversal down from around the all-time 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.