Emini end of the year triangle and breakout mode
Pre-Open market analysis
Friday was the 5th consecutive bull trend day after a higher low major trend reversal. The chart pattern was also a head and shoulders bottom. While the reversal is strong, it is now in the top half of a month-long trading range. In addition, Friday was the 5th consecutive bull trend bar on the daily chart.
Look at the streaks over the past year. The odds are that today or tomorrow will have a bear body on the daily chart. That means a close below the open. Consequently, traders will look for a reversal down after a morning rally.
Obviously, 5 consecutive bull days means that the bulls are strong. However, the stop is now far below and many bulls will take profits. They will look to buy again after a 1 – 3 day pullback.
Testing the November high and 2800 Big Round Number
Because this is strong buying pressure, the bears will probably need at least a micro double top before they can begin a reversal down lasting more than a few days. But, the Emini has been in a trading range for a month. Therefore, most breakouts fail. The Emini’s gap up today will be a test the November high and the 2800 Big Round Number. Traders will expect at least a minor reversal down this week. As a result, the bears will begin to look to sell for a 1 – 3 day pullback.
Because of the bull micro channel, the bulls will look to buy after 1 – 3 days down. Traders know that the trading range is more likely to continue than to break into a trend. They both will therefore take profits after any move goes 1 – 3 days. The result will likely be a continuation of the trading range for at least several more days.
Overnight Emini Globex trading
The Emini is up 42 points in the Globex session. Although there will be a gap on the daily and weekly charts, there will not be a gap on the monthly chart. When there is a big gap up on the daily chart, there is an increased chance of a trend day up or down. Typically, the odds slightly favor a trend in the direction of the gap. Here, that would be a bull trend. However, after 5 bull days, today or tomorrow will probably be a bear day. Consequently, traders will look to sell a rally either today or tomorrow.
A big gap up means eager bulls. However, traders do not like buying far above the average price. Today will open far above the 5 minute EMA. There is only a 20% chance of a bull or bear trend from the open that lasts all day. There is an 80% chance of at least one reversal in the 1st 90 minutes, even if today ends up in a trend. The bulls will look to buy a wedge bottom or double bottom near the EMA. However, the bears want an early top. They will sell a wedge rally or double top on the open and hope for an early high of the day.
If the opening range has a strong leg before a reversal, the odds of a big trend day go down. Traders will look for a weaker trend day. They therefore will be willing to take some trades in the opposite direction. Furthermore, they will look for at least a minor reversal in the 2nd half of the day.
EURUSD Forex head and shoulders bottom and double top bear flag
After reversing down from a failed breakout above a 6 month trading range, the EURUSD daily Forex chart has sold off from 3 months. It reversed up from a wedge bottom after breaking below the range. That reversal up formed a wedge bull flag at support on the weekly chart. Additionally, the chart had lower highs and a higher low in November. This is a triangle.
For the past month, traders have been deciding whether the bulls will get a reversal or a continuation of the bear trend. Neither the bulls nor the bears have an advantage.
Traders see the November trading range as a Breakout Mode pattern. The bulls want the head and shoulders bottom to begin a bull trend. However, the bears see a double top bear flag in a bear channel and want a new low.
Until there is a breakout, traders will look for reversals every few days, take profits and then trade in the opposite direction for the next few days.
Overnight EURUSD Forex trading
The EURUSD 5 minute chart sold off 60 pips overnight, and then rallied 30 pips. Neither trend was strong. Furthermore, today’s high is below Friday’s high, and today’s low is above Friday’s low. Consequently, today is an inside day in the middle of a month-long trading range. Traders believe that the price is just about right. When that is the case, they sell rallies, buy selloffs, and take quick profits. The result is a continuation of the month-long trading range. In addition, it increases the chance of days that have a lot of trading range price action.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
After a huge gap up, the Emini sold off, but held above Friday’s high, as expected. It rallied from a wedge bottom and entered a trading range day. Also, as I said was likely, today closed below the open. This was the 1st bear day in 6 days.
The bears want a gap down tomorrow or this week. That would create an island top. However, after 5 bull days, the odds are that the bulls will buy the 1st 1 – 3 day pullback. The rally was climactic. Consequently, this week might go sideways into Friday’s unemployment report.
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.