Emini test of January high and bottom of gap
Pre-Open market analysis
Yesterday, the Emini sold off to within 1 tick of the bottom of the gap on the daily chart. Furthermore, it reversed up from below the January high. Yesterday is therefore a breakout pullback test of support and a buy signal bar for today. The bulls want a strong rally today and tomorrow. They would like the week to get above last week’s high. This week would then be an outside up week, which would be a sign of strength.
However, yesterday’s rally was not strong and the bulls failed to break above the 60 minute EMA. In addition, the Emini has been sideways for 7 days.
For the bears, the Emini is reversing down from the top of a 5 month bull channel. The target is the bottom of the channel, which is around 2860.
Therefore, the daily chart is still deciding whether the breakout above the January high will succeed or fail. Traders need more information.
Overnight Emini Globex trading
The Emini is up 1 point in the Globex session. Therefore, today will probably open in yesterday’s 4 hour tight trading range. That increases the chance of a trading range open and of another mostly sideways day.
Since the daily chart is in breakout mode, a big trend up or down can begin on any day. However, until there is a strong breakout, there is no breakout. Day traders will continue to look for reversals after every 2 – 4 hour swing.
EURUSD Forex double bottom bull flag after parabolic wedges
The EURUSD daily Forex chart is rallying for a double bottom bull flag at the 20 day EMA. However, the parabolic wedge buy climax that ended August 28 is likely to have a 2nd leg sideways to down. In addition, the parabolic wedge bull flag that ended Tuesday was a tight bear channel. It therefore will likely lead to more sideways trading.
Consequently, while the bulls took control on August 15, the odds favor at least another week in the 5 month trading range. Since trading ranges resist breaking out, the daily chart may stay sideways for many weeks.
Markets often have symmetry. The daily chart was sideways for 3 months before the August 15 bull trend reversal. While unlikely, the trading range might continue for another 3 months before the bulls get their breakout.
Overnight EURUSD Forex trading
The EURUSD 5 minute chart rallied 40 pips overnight, but most of the bars were small and had prominent tails. This looks more like a bull leg in a trading range than a resumption of a bull trend. Day traders will therefore continue to scalp until there is a strong breakout up or down.
Since there is support at the 1.1530 double bottom, the bulls will look for a swing trade up from that level. The bears correctly expect that this rally will form a lower high. They will therefore look for a 1 – 3 day reversal down starting today or tomorrow.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini sold off strongly early and then entered a tight trading range at the 20 day EMA. It closed the August 24 gap, making it an exhaustion gap. However, the bulls got a late reversal back to test the January high.
Since the Emini reversed down from above the top of its 5 month bull channel, it will probably continue sideways to down to the bottom of the channel. There are 2 bull trend lines below, and the 1st target is around 2860. Traders will look for a reversal up from there. The bottom of the broader bull channel is around 2820.
Tomorrow is Friday and traders will pay attention to weekly support and resistance. The bears want the week to close below the bottom of the gap and below the January high. They also want the week to close on its low. The bulls always want the opposite.
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.