Emini December stock market crash to monthly bull trend line
Pre-Open market analysis
Monday was the 10th consecutive bear trend bar on the daily chart. This has never happened in the 20 year history of the Emini. It did not even happen in the 50 – 60% selloffs in 2002 and 2008. It is therefore unsustainable. That makes it a sell climax.
It will likely end this week. The bears will sell the 1st bull bar. But, the bulls might get a micro double bottom a day or two later. The Emini will probably soon enter a 200 – 300 point tall trading range for many months.
Stock market crash
The Emini is crashing on the daily chart. At the end of Monday, it finally dipped below the monthly bull trend line. Most bear markets end at monthly bull trend lines.
But, the momentum down is strong. In addition, there is another monthly bull trend line around 2,100. That is near the top of the 2014 – 2015 trading range. Since 2015, I have been saying that that trading range would probably be the final bull flag.
Furthermore, I said the Emini would probably hit 1,800 within the next 3 – 5 years. Prior to this month, the odds favored a new high before reaching that target. At the moment, there is a 50% chance that this selloff will reach the target before making a new high.
Because the Emini has crashed down to monthly support, the bears will probably begin to take partial profits here. The bulls know that and will start to scale into longs. With both the bears and bulls starting to buy, the Emini could begin a 1 – 2 week bear rally. Traders will look for a reversal up this week. Until there is a clear reversal, they will continue to sell every small rally on the 5 minute chart.
Overnight Emini Globex trading
The Emini is up 20 points in the Globex session. In addition, it reversed up 60 points from an early overnight selloff. Because a 1 – 2 week rally will probably begin this week, there is an increased chance that this is the start.
Friday ended in an extreme sell climax. There is therefore a 75% chance that today will have at least a 2 hour rally or trading range that begins by the end of the 2nd hour. There is a 50% chance of some follow-through selling in the 1st hour. But, the bears only have a 25% chance of another big bear trend day today.
The bulls will look for a swing up today. While the bears hope for another bear trend day, they know that the daily chart is in an extreme sell climax and that the monthly chart is below its bull trend line. Consequently, many bears will begin to take profits and wait to sell again near resistance on the daily chart. This reduces the chance of another big bear day.
Because the ranges have been huge, both the bulls and bears will probably have swing trades every day. However, the number and size of the bull swings will probably begin to get bigger than the bear swings.
The week between Christmas and New Year’s is usually the quietest of the year. However, this is relative. A quiet week after days that are 50 points tall could still have many days that are 30 – 50 points tall. Consequently, instead of lots of tight trading range trading, which is typical of this time of year, traders will probably still have many swing trades up and down.
EURUSD Forex market in tight trading range at apex of wedge
The EURUSD weekly Forex chart is in a tight trading range, which is a Breakout Mode pattern. It is also at the apex of a wedge bottom, which is another Breakout Mode pattern. When there is a Breakout Mode pattern, there is a 50% chance that the 1st breakout up or down will fail. In addition, the probability of a bull or bear breakout is 50%.
Until there is a breakout, there is no breakout. Traders buy low, sell high, and take quick profits. As a result, as any bar is forming, the odds are greater that the pattern will continue to add more bars than break out.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart has been in a 20 pip range for the past 5 hours. That is so tight that scalpers have a difficult time making money.
The week between Christmas and New Year’s is typically the quietest of the year. However, Forex markets often break out in early January. Therefore, day traders are ready for a breakout in the coming days.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
After a wedge selloff that tested Monday’s low, the bulls got a strong rally to above the 60 minute EMA. The open of the week is probably going to be the key price for the remainder of the week. This is because the bears want a bear bar after last week’s breakout below a 50 bar trading range. If the bulls instead get a bull bar, traders will begin to wonder if the bear breakout was a trap. If would increase the chance of a big rally over the next couple of weeks.
Since today closed near its high, it is a buy signal bar for tomorrow. The bulls want a strong reversal up from the monthly bull trend line. However, more likely, the 1st reversal up will be minor. But, at a minimum, it should test Friday’s high and 2,500 within a couple weeks.
Today was a FOMO (Fear Of Missing Out) short covering rally. It formed a Bull Surprise Bar on the daily chart. The odds favor at least 2 small legs sideways to up.
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.