Emini bear flag but higher low and possible triangle
Pre-Open market analysis
The Emini reversed up slightly on Friday at the end of a strong down week. The bulls hope that last Tuesday and Thursday formed a successful micro double bottom, and that the Emini is reversing up from the bottom of its yearlong trading range. After the November 7 lower high, the bulls are trying to form a higher low. The result could be a triangle over then next month or two.
The Emini had 4 consecutive bear bars on the daily chart. Since this is unusual, today or tomorrow will probably close above the open of the day.
There is a tendency to rally into the end of the year. This is especially true when the market is oversold, like it is now. But, the October 29 low is still a strong magnet below. Therefore, the bulls will need a series of bull days this week to escape that magnetic pull. Without that, the odds are that the Emini will fall at least a little further over the next two weeks.
Overnight Emini Globex trading
The Emini is up 28 points in the Globex session. There will be a big gap up above Friday’s close on the open. If today gaps above Friday’s high, there will also be a gap up on the daily chart. Since there was a gap down 4 days ago, this will form a 4 day island bottom. While this is a minor buy signal, the context is good for the bulls. It therefore has an increased chance of creating the bottom for the next couple of months.
If there is a gap, but it is less than 5 points, it will probably close in the 1st hour. If the bulls can keep the gap open and create a bull trend day, the odds will favor higher prices this week.
When there is a big gap, there is only a 20% chance of a trend from the open that lasts all day. There is an 80% chance of at least one reversal in the 1st 90 minutes. The bulls will try to create a double bottom or wedge bottom near the EMA.
However, the bears want a double top or a wedge top, and then an early high of the day. The context on the daily chart gives the bulls a slight advantage over the bears. If there is going to be a trend day, up is more likely. Because of the sell climax over the past month, there is an increased chance of a big bull trend day and a series of bull trend days.
The bears always have an argument. They want a strong break below the February low. If the bears are strong, they can create a huge bear day at any time. For today at least, the odds favor the bulls.
EURUSD daily Forex chart high 2 bull flag but in bear channel
The EURUSD weekly Forex chart (not shown) triggered a sell signal overnight by trading below last week’s low. As I wrote over the weekend, even though last week was a strong sell signal bar on the weekly chart, there might be more buyers than sellers below. Last night traded only 1 pip below last week’s low and reversed up. This is a sign that the bulls might be more aggressive at this level than the bears.
On the daily chart above, the past 5 days formed a 2 legged pullback from a 5 day rally. Since the November selloff was a wedge, the odds are that there will be a 2nd leg up. Moreover, the bulls will probably be able to break above at least one minor lower high in the bear channel. Consequently, the EURUSD daily chart should get above the November 20 high this week.
If so, the bar on the weekly chart would be an outside up bar after a strong sell signal bar. Thar would create trapped bears. This week would then be a buy signal bar on the weekly chart for next week. At the moment, the chart will probably go above the October 16 high before it falls below the November 12 low.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart rallied 60 pips overnight after reversing up from below last week’s low. While the rally has not been especially strong, the context is good for the bulls on the daily and weekly charts. Consequently, traders will look to buy pullbacks and strong breakouts, hoping for a continued rally this week.
Because the rally so far has not been strong, day traders will also be willing to sell reversals down for a scalp. Unless there is a strong break below the overnight low, most bears will not swing trade.
However, if they break below the overnight low, they will trigger the weekly sell signal again. The bulls will give up their hope of an outside up week. That would increase the odds of a failed High 2 bull flag on the daily chart. Traders would then look for a break below the November 12 low.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
By gapping up, the Emini formed a 2 day island bottom nested within a 4 day island bottom. Since the Emini is near the bottom of a yearlong trading range, the location is good for the bulls. However, today was the 1st bull day in 5 days. And, it was not a big bull bar closing on its high. Therefore, the bulls need several other bull bars this week before traders will believe that the rally will test back up to the November high over the next few weeks. Without that, the odds still favor a test of the October low and possibly February low.
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.