Emini follow-through buying after consecutive outside day
Thursday was an outside up day after an outside down day on Wednesday. It was therefore a buy signal bar. Friday was the entry bar on the daily chart, and it provided reasonable follow-through buying. This increases the odds of a new all-time high within a couple of months. It might even come this week.
The bears need to create strong bear days before traders will believe that they are back in control. The odds favor higher prices.
Pre-Open market analysis
The Emini is down 1 point in the Globex market. The market only rarely has 3 consecutive strong trend days. It has been in a tight channel for 2 days. Ninety percent of tight channels end by the end of the 3rd day. They end by converting into a trading range for about 10 bars on the 60 minute chart. That is about a day and a half. Therefore, the odds favor more trading range trading today and certainly by the end of tomorrow.
Consequently, day traders expect a 10 point selloff today or tomorrow. But, the 2 day rally was strong. Day traders will buy every 10 – 20 point reversal attempt, expecting a new high within a day or two.
Overnight Emini Globex trading
EURUSD Forex has 5 consecutive bear trend days
The EURUSD daily Forex chart had its 4th consecutive bear trend day on Friday. This is the 1st streak of 4 trend days up or down in the entire 3 month trading range. So far, today is another bear trend day. The last streak of 5 consecutive trend days up or down came during the May collapse.
All trading ranges eventually breakout, even though most attempts lead to reversals and a continuation of the range. This breakout attempt is different. Whenever a trading range begins to have a streak of 4 or 5 consecutive trend days up or down, the odds are that a successful breakout is about to happen. Here, the bear days are a sign of sustained selling pressure. Therefore, traders should expect a break below 1.15 within the next week. This is true even if there is a 100 pip reversal up to around the 20 day EMA 1st. Therefore, traders will sell rallies.
Furthermore, traders will look for the selloff to fall for about a measured move down. Since the 3 month range is about 300 pips tall, traders will look for the move to reach around 1.12 over the next few months. Unless the bulls create a very strong reversal up before then, the odds are that the bear trend is resuming.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart sold off 40 pips overnight. While the past 5 days have not been big bear days, the number of bear days is important. A chart has 2 variables, price and time. Many trends begin with time (a streak of trend days) before price. Traders now believe that there will be a successful breakout below the 3 month range.
Every trend will have many reversal attempts. But, my 80% inertia rule also applies to trends. Once a market is in a trend, 80% of reversal attempts will fail and become bear flags. While the daily chart is still in its 3 month range, it is also in an early bear trend. Therefore, day traders will look to sell 50 – 100 pip rallies this week. They expect each to lead to a new low.
Because the selloff on the 5 minute chart was not climactic, bull day traders are buying reversals for 10 – 20 pip scalps. The bears will sell rallies for scalps and swings.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
While the 3 day rally has been strong, it is also a buy vacuum test of the July high and the 2850 Big Round Number. Furthermore, the Emini had its 3rd consecutive day in a tight bull channel on the 5 minute chart. This is unusual and therefore climactic. The odds favor a pause for 1 – 1 1/2 days starting within 2 days.
If the bulls get a breakout above today’s triangle, the triangle would likely be a Final Bull Flag. The result would be a pullback into the triangle on the 5 minute chart. However, the bull trend is strong enough to make a bear swing unlikely without at least a micro double top on the daily chart.
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.