Emini October selloff erased all of 2018 gains
Pre-Open market analysis
I said at the close of Tuesday and again on yesterday morning that there were 2 problems with Tuesday’s rally. First, the 5 minute chart lacked consecutive big bull bars closing on their highs. Second, the reversal up on the cash index daily chart was from about 10 points above last year’s close. Yesterday showed that those problems were significant.
Yesterday closed below the 2017 close in both the Emini and S&P500 cash index. Both are now down on the year. Since the Emini oscillated in a big range around last year’s close for the 1st half of this year, it might do that again for the next couple of weeks. This is especially true with the uncertainty of the election in 2 weeks.
There is no sign of a bottom yet. The next support is the May low at around 2600.
Overnight Emini Globex trading
The Emini is up 17 points in the Globex session. While that sounds like a lot, it is not when compared to the size of yesterday’s sell off.
A sell climax like yesterday only has a 25% chance of strong follow-through selling today. There is a 50% chance of at least 2 hours of sideways to up trading that starts by the end of the 2nd hour. This is especially true since the October selloff has been simply a sell vacuum test of the close of last year. Since it accomplished its goal yesterday, there is no need to fall much further today.
Because the 2686.75 close of 2017 has been the most important price on the daily chart all year, it is a magnet. The Emini rallied above it overnight and then pulled back. Today might oscillate around it in a trading range day. If the Emini within 20 points of it after 11 a.m. PST, it will probably get drawn to it to test it again.
The bears want consecutive closes below it. That would be a sign of strong bears and increase the chances of a move down to the next support at around 2600. Since the bulls always want the opposite, they will try to get today to close above 2689.75. They would then hope for a reversal up from a lower low double bottom with the October 11 low.
The Emini is in the middle 3rd of the 2018 trading range. Therefore, the odds are that it will begin to enter a trading a smaller trading range. That would increase the odds for more trading range days over the next couple of weeks.
EURUSD weekly Forex chart has a double top bear flag
The EURUSD weekly Forex chart has been in a tight trading range for 6 months. Trading ranges always have both a reasonable buy and a reasonable sell setup. However, they resist breaking out.
The bears have a double top bear flag with the July and September highs. There is a 40% chance of a breakout below the August 15 low neckline and then a measured move down to 1.08. That means that there is a 60% chance of a higher low above the August low or of a break below that quickly reverses up. break below that reverses up would form a wedge bull flag with the November 7 and August 15 lows on the weekly chart.
The 5 week selloff lacks consecutive big bear bars closing on their lows. Most of the bars overlap the prior bar. Consequently, the momentum down is weak and the selloff is more likely a bear leg in the 6 month trading range than the start of a resumption of the selloff in April and May.
I mentioned yesterday that there could be a nested parabolic wedge forming on the daily chart. Since yesterday’s selloff was strong, the bulls will probably need a micro double bottom before they can get a 2 week, 200 pip reversal back up to the October 16 high.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart has been in a 30 pip range overnight. This is what typically happens after a sell climax like the one from yesterday. The selling stops for a day or so, and then traders decide if there will be a reversal or another leg down. Since the bulls probably will need a micro double bottom, the odds favor at least a small 2nd leg down within a few days.
If today is a bull trend day, which it is so far, it would represent bad follow-through selling on the daily chart. The bulls would then have a 40% chance of the 2 week rally beginning without a micro double bottom.
For the bears, today is a pullback from yesterday’s selloff. Today therefore will be a sell signal bar for tomorrow. But, if today closes above its open, the bar on the daily chart will have a bull body. There would then probably be more buyers than sellers tomorrow below today’s low.
Consequently, the fight today will be over the close. If it is above the open, the odds are that there will be a parabolic wedge reversal beginning within a few days. If it closes on the low, the bears will have a 60% chance of at least another day or two down.
Remember, there is only a 40% chance of a strong break below the August 15 low. As strong as the 2 week selloff has been, it is no stronger than any other selloff or rally for the past 6 months. During every one of them, I said that a reversal was more likely than a breakout. That is always the case in a trading range.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini gapped up and rallied in a bull channel. However, it reversed down in the final hour and closed below last year’s close. Since this is the 2nd consecutive day closing below that price, it increases the chances of lower prices over the next few weeks.
Because today was a bull inside bar, it is a buy signal bar for tomorrow. However after 3 mostly sideways days, a doji bar, and a 7 bar bear micro channel of the daily chart, sideways for a few days is more likely than a strong bull trend.
It is also a sell signal bar for tomorrow. Since it is a bull doji, it is a weak sell setup. Also, the daily chart is in a 7 day bear micro channel and therefore in a sell climax. This lowers the chance of much more selling this week.
Tomorrow is Friday and weekly magnets will be important. These include the low of 2 week’s ago, this week’s low, and, most importantly, the 2017 close.
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.