Emini blow-off top leading to test of year’s open
The Emini began with a trend from the open bull trend. This is a possible low of the day. However, a Buy The Close rally on the open usually does not last all day. It typically either becomes a big trading range, or enters a tight trading range after the 1st hour or so. The big bull bars make a big bear trend day unlikely without a parabolic wedge top.
Pre-Open market analysis
The weekly Emini chart has 2 consecutive exceptionally big bull trend bars closing near their highs. This is extreme buying. However, when a pair of consecutive extremely strong bull bars form late in a trend, they usually attract sellers. The strong bulls see it as a surprisingly great opportunity to take profits. They will typically wait for at test of the bottom of the buy climax and the 20 week EMA before buying again. The strong bears know this and they begin to sell, looking for that test down over the next few weeks.
When there are consecutive big bull bars in a buy climax, there is only rarely a 3rd consecutive big bull bar. Consequently, the odds are against a big bull week. More likely, this week will be either a transition week on the weekly chart, or a reversal week. A transition week is a small bull bar or a doji bar, and both would probably lead to a reversal down next week. Friday’s vote on a government shutdown is an obvious potential catalyst.
Pullback beginning this week?
The odds are that the weekly chart will put it a short-term top this week. The target for the reversal is the bottom of the final buy climax. Since that is near the magnet of the 2687.00 open of the year, the Emini should test there over the next few weeks.
Because the weekly and monthly rallies are so extremely strong, the odds are that a test of the open of the year will lead to a rally back up to the January high. Consequently, traders will buy the 5% pullback.
Overnight Emini Globex trading
The Emini is up above 7 points in the Globex session and it might gap above Friday’s high and the 2800 Big Round Number. The dominant force this week is the pair of big bull bars on the weekly chart. The odds are against a 3rd consecutive big bull trend bar on the weekly chart. In addition, the odds are that the Emini will begin to test down to the open of the year. Consequently, day traders should be ready for one or more bear trend days this week.
EURUSD Forex market trading strategies
I was away 3 days last week. I discussed 2 relatively high probability trades over the past 2 weeks. On January 3, I said that the odds favored sellers above that day and then a test down to below the November 27 high. I then said that there would probably be buyers below that high for a test back up above 1.2100.
The rally on the daily chart is strong. Most bears will wait to sell until they see either a micro double top or 3 consecutive strong bear bars. There is neither yet. Consequently, the odds are that the bulls will buy the 1st pullback. That means that they will buy at and below Friday’s low and today’s low. If the pullback this week has 2 big consecutive bear bars or 3 consecutive medium bears bars, the bulls will exit and wait for at least a micro double bottom before buying again.
Last week’s rally was exceptionally strong. However, there is always a bear case. For example, traders can see a possible wedge top on the monthly chart (see insert). The bears need a reversal down in the next month for this wedge to trigger.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart sold off 80 pips overnight. The selloff is near Friday’s 1.2187 low, which is a magnet. However, last week’s rally on the daily chart was strong. This means that traders will likely buy below Friday’s low.
The overnight selloff has been in a broad bear channel. That usually leads to a trading range. Consequently, the bulls will buy below lows on the 5 minute chart and scalp. The bears will scalp by shorting above lower highs in the bear channel. Today will probably evolve into a trading range.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The bears got an outside down day today and their 1st bear day in 2 weeks. In addition, the buy climax on the weekly chart will probably lead to a test of the 2 week buy climax low. Furthermore, that is at the additional magnet of the low of the year. While every reversal is minor, the upside over the next few weeks is small.
After a big sell climax day like today, there is a 75% chance of at least a couple hours of sideways to up trading tomorrow, beginning by the end of the 2nd hour. There is only a 25% chance of a consecutive big bear day. Yet, if the bears get it, there would be a 70% chance of a test of the open of the year withing a couple of weeks.
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.