Trump rally stalling before possible FOMC March rate hike
The Emini gapped down and created a 3 day island top. Yet, it immediately rallied above yesterday’s low and closed the gap. While there were consecutive bull bars, which made the Emini Always In Long, the bars were not especially big. Furthermore, the 2nd bull bar had a big tail, the 1st bar was a doji, and the 4th bar was a strong bear trend bar. This reduces the chances of a strong bull trend day.
Yet, the bull bars at the bottom of a 4 day range reduce the chance of a strong bear day. Therefore, the odds favor another day with a lot of trading range price action. Since yesterday was a trading range day with big swings, today will probably have at least one big swing. The Emini is now deciding on the direction of the 1st swing.
This early confusion increases the chances of an opening trading range. The 60 minute moving average is just a couple points above. It therefore could be the top of the developing range. If there is a new low of the day, the odds are that it will reverse up again. If so, that would be a higher probability buy because it would be a 2nd entry for a failed breakout below yesterday’s low.
Pre-Open Market Analysis
Yesterday was an outside down day, but the Emini then traded back above the Wednesday’s high. Because that was a Big Down, Big Up move, it created confusion. Therefore, traders expected a trading range. In addition, the Emini has been sideways for 3 days. Furthermore, it broke above an ii bull flag on Monday.
Since these are all signs of trading range price action, the odds are that the Emini will continue sideways on the daily chart. The FOMC meeting is only 3 weeks away. In addition, the Emini had a buy climax up to measured move targets. Hence, the trading range could last to the March FOMC meeting.
When the daily chart is in a tight trading range, there is usually more trading range price action on the 5 minute chart.
Overnight Emini Globex trading
The Emini is down 10 points in the Globex market. I have said many times over the past week that the breakout above last week’s ii pattern would probably last 1 – 3 days. Furthermore, I said that the Emini would then probably enter a trading range going into the March FOMC report. In addition, a likely bottom of the range is the bottom of the ii pattern, which will probably be a small final bull flag. Hence, Monday’s gap will probably close and become an exhaustion gap.
While exhaustion means an end to a trend, it usually leads to a trading range instead of an opposite trend. Therefore, the Emini will probably be mostly sideways going into the FOMC announcement in 3 weeks.
5% correction down to the 2016 close
Can this selloff be the start of the 5% move back down to the 2016 close? Yes, but the bears will probably need a trading range lasting at least a week or two. They need to create enough selling pressure to convince traders they are strong enough to take control. Hence, bulls will probably buy selloffs for at least another week.
Because trading ranges on the daily chart usually lead to trading ranges on the intraday chart, the odds favor more trading range days. Yet, the swings can be big, like yesterday.
EURUSD Forex Market Trading Strategies
The EURUSD daily chart has rallied for 3 days. Yet, it probably did not get close enough to the January 11 low to convince traders that the low was adequately tested. Hence, the odds still favor one more push down before a 100 – 200 point rally back to the middle of the 4 month trading range.
The bulls are hoping that the bottom is in. They therefore see this 3 day rally as a reversal up from a higher low major trend reversal. Hence, this is a head and shoulders bottom. Because the odds still favor a test closer to the January 11 low, traders do not yet trust this rally.
Yet, if the bulls can continue to create bull bars and break strongly above the February 16 minor lower high, the odds will shift in favor of the bulls. Therefore, the EURUSD would likely test the February 2 neck line of the head and shoulders bottom. That major lower high is the top of the 4 month trading range. Furthermore, it is about 200 pips higher.
Overnight EURUSD Forex price action
The 3 day rally formed a 3rd push up in a Spike and Channel bull trend on the 60 minute chart. That often evolves into a trading range. Hence, if this is still a bear rally and not the start of a bull trend, the bears should take control today or tomorrow.
Furthermore, since the EURUSD will probably rally from the bottom half of its 4 month range, the bears will probably fail. Hence, the odds favor a test of the top of the range. Since that is about 200 pips higher, the odd favor a rally lasting at least several weeks. Traders are simply trying to determine if it has already begun.
The bears want a strong break below that January 11 major higher low. If they succeed, they will then try to break below the 4 month trading range to create a new 15 year low. That would therefore make a test of par likely.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini failed to close Monday’s gap. Because today was a bull day closing on its high in a 4 day trading range in a bull trend, it is a buy signal bar for Monday. Yet, the odds are that a rally next week will not get too high because the Emini is so far above its moving average.
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.