Emini October sell climax erasing the 2018 gains
Pre-Open market analysis
The Emini sold off strongly last week. It will probably soon give back all of 2018’s gains by falling below last year’s close. However, because the selling has been so extreme, the bears might take partial profits first. Even if they do, the odds are that the Emini will fall below the 2017 close this month. The momentum down is strong and the Emini oscillated around it for the 1st half of the year. Therefore, it clearly is important.
Will today be another big bear trend day? Since Friday closed near its high after a 2 day sell climax, it is more likely that today will trigger a buy signal by going above Friday’s high. That increases the chances of a 1 – 3 day rally this week.
Traders will find out over the next 2 weeks if something is fundamentally different, which would result in more selling, possibly down to the February low. Or, was the selling mostly options related, which should lead to a new high by year end. And, the reversal up could be abrupt. Therefore, there is a 30% chance of a very strong rally this week.
Overnight Emini Globex trading
The Emini is down 4 points in the Globex market. The 2 day head and shoulders bottom could lead to sideways to up trading this week. However, since Friday had a bear body, there will probably be sellers above its high.
In addition, it was a doji. That makes it a weak sell signal bar. That means there are probably buyers below its low.
With sellers above and buyers below, the Emini is transitioning into trading range price action. Day traders will look for reversals. Because the daily ranges have been big for 3 days, today’s range will also be big. Even though it might be smaller than Friday, a big range will allow day traders to swing trade the legs in the developing range.
There is a 2 day head and shoulders bottom. But, because last week’s selloff was so strong, a reversal up will probably stall within a couple of days.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart has been in a trading range for 6 months. There have been many strong legs up and down, and every one of them reversed. Traders will continue to bet on reversals instead of a breakout of the 6 month range.
The current 5 day rally looks like a parabolic wedge. Therefore, the are probably sellers above the October 12 high, creating the final 3rd small leg up. If so, the bears will create a couple small legs sideways to down over the next week or two.
Less likely, this rally will continue above the September 24 high without a test down. Or, it will form a head and shoulders top where the September 24 high is the top. Then, the bears will get a break below the August low.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart rallied 60 pips overnight. It is now testing Friday’s high. But, the 5 day bull channel is tight. In addition, this is now the 3rd leg up (the 1st was October 3). Therefore, this is a parabolic wedge rally. That usually leads to a couple legs sideways to down. Consequently, despite the overnight rally, the odds favor sellers above Friday’s high and then a couple small legs down on the daily chart.
Day traders will buy pullbacks today and tomorrow. This is because a small 3rd leg up is likely early this week. But, they will begin to sell once the rally goes above Friday’s high. There will then probably be a test back down to 1.15 and the October 9 high.
Since October 9 was only a doji, it was not a strong buy signal bar. The high of a weak buy signal bar usually gets tested.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini continued its trading range for a 3rd day. Today was the 2nd consecutive inside day. There is therefore now an ii Breakout Mode pattern for tomorrow. Since today closed near its low, the past 4 days were bear days, and the close of last year is a major magnet below, today is a reasonable sell setup for tomorrow.
The odds favor a test of the 2017 close whether or not there is a rally for a few days 1st. However, how the Emini reacts to that test is important. If it reverses up, the year will probably close near the high or at least above the midpoint of the October selloff. If it continues down, the Emini might test the February low.
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.