Emini bear rally from sell climax at monthly bull trend line
Pre-Open market analysis
Before the open yesterday, I said that yesterday would probably be a bull trend day. This is because there were 10 consecutive bear bars on the daily chart and that has not happened in the 20 year history of the Emini. Furthermore, the Emini poked below the monthly bull trend line on Monday, and there are usually buyers at a monthly bull trend line.
Yesterday’s rally was a strong short covering rally. In addition, FOMO bulls (Fear Of Missing Out) bought all day. It was surprisingly strong. As a result, bulls will buy the 1st pullback. The odds therefore favor at least a small 2nd leg up within a week.
Bear rally and trading range likely over next several weeks
A 10 day sell climax means the bears are strong. Consequently, even if the bulls get a 1 – 2 week rally, it will probably be minor. Typically, the bulls need at least a double bottom or a micro double bottom to reverse a bear trend.
But, a bear rally can be strong. The 1st target for the bulls is Friday’s high. This is because it was the top of a 2 day sell climax. It will also be near the 20 day EMA and the 2500 Big Round Number. Last Wednesday’s high is a higher sell climax high. There is also a bear trend line on the 60 minute chart around the 2500 Big Round Number.
The bulls might need 1 – 2 weeks to get one or all of these targets. In addition, there is a 50% chance of another 1 – 3 day sell climax before the bear rally begins. Many bulls want at least a micro double bottom before buying.
The confusion that happens after a climax usually results in a trading range. Big Down, Big Up creates Big Confusion. That is what is likely over the next 2 weeks.
The bulls want a bull bar on the weekly chart when this week’s candlestick closes tomorrow. Therefore, they will buy dips below the open of the week. The bears do not want a strong buy signal bar on the weekly chart. They will therefore sell rallies, trying to put a tail on the top of this week’s candlestick.
Overnight Emini Globex trading
The Emini is down 36 points in the Globex session. Since yesterday was a buy climax, there is a 75% chance of at least 2 hours of sideways to down trading today that starts by the end of the 2nd hour. Even if today is a trading range day, the legs will probably be big enough to swing trade.
When there is a buy climax into the close, there is a 50% chance of at least some follow-through buying in the 1st 2 hours. But, there is only a 25% chance of a strong trend day up or down. Day traders expect at least one swing trade up and one down today. Because this is Christmas week, there is an increased chance of protracted tight trading range trading, despite yesterday’s strong trend.
EURUSD Forex BO Mode with double top bear flag and double bottom higher low major trend reversal
The EURUSD daily Forex chart is in a tight trading range. A trading range always has a credible buy and sell signal. Here, the bulls have a double bottom higher low major trend reversal. For the bears, it is a double top bear flag. Until there is a breakout, traders are buying low, selling high, and taking profits every 1 – 3 days.
Currency markets sometimes have breakouts on or shortly after New Year’s Day. Since this tight range has gone on for an unusually long time, there is an increased chance that traders are expecting a New Year’s breakout. When one comes, it can sometimes lead to a move that lasts many months.
When a market is in Breakout Mode, there is a 50% chance that the 1st breakout will fail and reverse within a few days. In addition, there is a 50% chance that the successful breakout will be up or down.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart has been alternating small trends up and down for several days. It rallied 60 pips last night, but retraced about half of that over the past 2 hours.
Day traders are scalping for 10 – 20 pips, as they have been for 2 months. However, tight trading ranges do not last forever. Two months is an unusually long time on the daily chart. Consequently, day traders will be quick to switch to swing trading once they see a big, sustained breakout on the 5 minute chart. That would correspond to a breakout on the daily chart.
But, until there is a breakout, there is no breakout. They will make more money scalping while they continue to wait.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
After a big gap down, today entered a trading range. Trading ranges are common between Christmas and New Year’s. After a late failed breakout below the open of the week, the bulls got a strong rally. Because there are now consecutive big bull bars, the odds favor higher prices over the next few days. The February low is a target since it is the breakout point.
As I have been saying all week, the open of the week is an important magnet, especially on Friday. This is because the bears want a bear bar on the weekly chart. That would be follow-through selling, and it would increase the chance of lower prices over the next few weeks.
However, the bulls want a bull bar. They would then see this week as a buy signal bar on the weekly chart for a failed bear breakout. Today tested the open and reversed up strongly. This increases the chance of higher prices next week.
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.