Emini and Forex Trading Update:
Friday January 3, 2020
I will update again at the end of the day.
Pre-Open market analysis
Yesterday was the 1st day of the year. On a yearly chart, last year was a big bull bar closing on its high, late in a bull trend. That increased the chance of at least slightly higher prices at some point this year on the yearly chart.
On the open yesterday, the Emini hit last year’s high exactly to the tick. The Emini then reversed down. However, after a wedge bottom, the Emini reversed back up to above the 2019 high at the end of the day.
Because yesterday ended in a buy climax and a breakout above a key price (last year’s high), the rally might have simply been a blow-off top. It might have been a buy vacuum test of major resistance.
Even if the bears get a reversal down within the next couple of weeks, it probably would be minor. That means it would last 2 – 3 weeks. The odds continue to favor at least slightly higher prices until the bears create a stronger top or get a surprisingly strong reversal down.
Today is Friday and therefore weekly support and resistance can be important, especially in the final hour. The most important prices are last week’s high and low and the open of the week. This week is an outside up week and the bulls want the week to close above last week’s high.
The bears want the week to close below the open of the week to create a bear body on the weekly chart. They would prefer this week to close below last week’s low. This week would then be an outside down week after a buy climax. That would increase the chance of lower prices next week.
Overnight Emini Globex trading
The Emini sold off more than 50 points overnight, totally reversing yesterday’s buy climax. Today might even gap below yesterday’s low. If the gap stayed open, yesterday would then be a 1 day island top in a buy climax.
If today opens around yesterday’s low, there will be an increased chance of a big bear trend day. All of the bulls who bought yesterday and all of the bulls who bought over the past couple months will be wondering if the 3 month rally was a blow-off top. If the bulls begin to take profits, more and more bulls will sell as the price falls, increasing the selloff.
Sometimes after a big bull day in a bull trend, the next day opens near the low of the bull day. If that day begins to trend, the day can become a big bear day. If there is a big bull day and the next day opens near the low of the bull day and then becomes a big bear day closing near its low, it is a sell signal on the daily chart. It often leads to a bigger reversal down than what traders thought was likely.
The bulls know that and they will try to prevent today from being a big bear day closing near the low. Since the pattern I just described is rare, today will probably not be a big bear day closing on the low. More likely, the week will close around the middle of the week. This week would then be more of a doji bar on the weekly chart.
But if the bears do get a bear day today, the bar on the weekly chart would be an outside down bar. After a buy climax, that would increase the chance of a deeper pullback this month.
EURUSD Forex market trading strategies
The daily chart of the EURUSD Forex market had a bear inside bar yesterday after an outside bar. This is an ioi sell signal, and it triggered overnight when today traded below yesterday’s low.
Most attempts to break above or below a trading range fail. The bears might get a 2 – 3 week pullback to the middle of the range.
It is important to remember that the weekly and monthly charts are still in bear channels. However, this 3 month rally was the 1st rally in 16 months to break above the bear channel. That reduces the odds that this selloff will go to a new low. But it if does, traders will buy a reversal up, just like they did with every new low for 16 months.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market sold off 50 pips overnight in a parabolic collapse. Because that is a sell climax, traders should expect the selling to stop soon.
It might have ended in the past hour. While the bulls want the 25 pip bounce to reverse the entire overnight selloff, a tight bear channel normally leads to a trading range. After 20 or more bars in the range, the bulls will have a better chance of getting a reversal up into a bull trend. Consequently, the overnight bear trend is probably converting into a trading range. The range will probably last at least a couple hours.
The bears want today to close near its low. This is Friday. If today closes near the low, the weekly chart will have a strong sell signal bar.
The bears see the 3 month rally as a Low 2 bear flag and hope that the bear trend resumes. Day traders will therefore be fighting today over the close of the week. The bears will sell rallies and the bulls will buy selloffs.
The bears do not need the low to be any lower than it currently is. This week would still be a good sell signal bar if today simply closed near the overnight low. That lack of incentive and the overnight sell climax reduce the chance of a continued bear trend today.
The reversal up so far has not been strong. Day traders are expecting a trading range for at least 2 hours and probably all day.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
After a big gap down, the 1st bar of the day was a huge bull bar. That was a Bull Major Surprise Bar, which made a bear trend unlikely. The Emini was sideways to higher for the rest of the day.
Because the Emini closed just below the open of the week, the candlestick on the weekly chart is a bear doji. That is a neutral bar. Neutral means not as bullish as the Emini has been for 3 months. Traders are wondering if there will be 2 – 3 weeks of profit-taking in January. Since this week is not a good buy or sell signal bar, the Emini might have to go sideways for another week or two as traders wait for clearer patterns.
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
Traders can see the end of the day bar-by-bar price action report by signing up for free at BrooksPriceAction.com. I talk about the detailed S&P Emini futures price action real-time throughout the day in the BrooksPriceAction.com trading room. We offer a 2 day free trial.
Charts use Pacific Standard Time
When I mention time, it is USA Pacific Standard Time (the Emini day session opens at 6:30 am PST, and closes at 1:15 pm PST). You can read background information on the intraday market reports on the Market Update page.