Correction after Trump tax cut and Obamacare repeal and replace
Yesterday reversed up strongly from a wedge bottom. Therefore, the odds favor a 2nd leg up today. Yet, today opened with 3 big bear bars within yesterday’s 4 hour trading range. Therefore, the bulls are hesitating. They want an opening reversal up from the moving average for an early low of the day.
Because those 3 big bear bars are just above the 60 minute moving average, and the 60 minute chart has a 20 gap bar buy signal, the downside is not great. Hence, the bears need a strong break below the 60 minute moving average to create a strong bear trend. This is unlikely. Therefore, the odds are against a strong bear trend, at least for the 1st few hours.
This is a trading range open. Furthermore, the all time high is resistance above. Hence, the odds are that the Emini will be sideways for the 1st hour or two. Because the all-time high is a magnet, there is an increased chance of a bull trend day today. But, this open and the location between support and resistance make a trading range likely.
Pre-Open market analysis
Today is Friday and therefore weekly support and resistance are important. The bulls was a breakout to a new all-time high. The bears want a close below the open of the week. Since yesterday reversed up from a wedge bottom, the odds are against the bear close on the weekly chart.
Because yesterday reversed up from a 20 gap bar buy setup on the 6 minute chart, the odds favor sideways to up today. Yet, since the weekly chart has a strong buy climax, the odds are against more than 1 – 3 more weeks up. In addition, May and June tend to be down months. This also reduces the chances of a big rally over the next couple of months.
Nothing has changed from what I have been saying for 2 months. I said that the Emini would probably test the March 15 lower high or the all-time high. The odds at that point favored a move down below the weekly moving average. The bulls are getting their test. While they might get a new high, the odds are that the breakout will fail and reverse down at least 100 points within a couple of months.
Last day of the week and month
Because today is Friday, it determines the appearance of the weekly candlestick. At a minimum, the bulls want a close above the midpoint of the week.
Furthermore, it is the last day of the month. It therefore affects the monthly chart. Consequently, he bulls will try to create as much strength as possible. At a minimum, they would like this month to close above last month’s high. Hence, they want a close at a new all-time high. Hence, last month’s 2,398.00 is an important magnet at the end of the day.
Therefore, if the Emini is within about 5 points at the end of the day, traders should be ready for a possible strong rally. Id addition, it the Emini gets to within a couple of points, they also should be ready for a strong reversal down.
Overnight Emini Globex trading
The Emini is up 1 point in the Globex market. Since yesterday reversed up strongly from a 2 day wedge bottom, the odds favor a 2nd leg sideways to up today.
Yet, the Emini is only 11 points below the all-time high. In addition, it sold off violently twice on Wednesday from just below that high. The bears are therefore trying hard to create a double top with the March all-time high of 2,398. Since today is the last day of the week and of the month, it affects the appearance of those charts. Consequently, traders should be ready for a possible Sell The Close or Buy The Close trend in the final hour.
EURUSD Forex market trading strategies
The EURUSD daily Forex market has rallied for 3 weeks. In addition, it broke above its 6 month trading range. Furthermore, it has been forming higher highs and lows. Consequently, it is in a broad bull channel. Yet, if it reveres back down, traders will conclude that the 6 month trading range is just a bear flag on the monthly chart.
Trends have clarity. Hence, when a trader looks at a bull trend, he wants to buy. In addition, if the trend is very strong, he feels like he wants a pullback. This is not the case with the EURUSD daily Forex chart. When traders look at it, they still believe that a reversal down is just as likely as a measured move up. Therefore, this rally is still more likely to fail than be the early stage in a new trend. Consequently, the bulls need to do more before traders will eagerly buy at the top of the rally.
One way to increase the probability of a bull trend is to consecutive big bull trend bars closing on their highs. Additionally, they could continue the 3 week tight bull channel for 10 – 20 more bars. Therefore, without some sign of strong control by the bulls, traders will correctly believe that this rally will fail within a couple of weeks. As a result, it would then be followed by a leg down that lasts 2 – 3 weeks. Hence, traders would conclude that the trading range is still in control.
Overnight EURUSD Forex trading
The EURUSD Forex market rallied 90 pips overnight. In addition, it broke above yesterday’s high. Yet, it has not yet broken strongly above the 5 day trading range. Furthermore, it sold off 40 pips over the past 2 hours. Consequently, this creates confusion. Hence, the bulls do not yet have follow-through buying after their breakout on the daily chart. It therefore makes it likely that the 5 day trading range will continue today.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini is forming a double top on the daily chart. Yet, it now has a double bottom bull flag on the 60 minute chart. May and June are typically weak months. Since there is a 70% chance pf the start of a correction within the next few weeks, bears will probably sell any strong rally to a new all-time high. In addition, there is a risk that the correction could be sudden. This is a good price and time to buy puts or put spreads.
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.