Emini outside down day after September FOMC announcement
Pre-Open market analysis
The Emini rallied briefly after the FOMC report but sold off from above Tuesday’s high to below Tuesday’s low. Yesterday was therefore an outside down day. The odds are that last Friday began a 2 – 3 week selloff down to support. The support is the bull trend line and the 20 week EMA.
If the bulls create a strong reversal up today or tomorrow, then they will have a chance at a new high before testing the 20 week EMA. For example, if today is a bull inside bar on the daily chart, it will form an ioi buy signal for Friday. But, the bulls still would need a strong reversal up to erase yesterday’s selling pressure.
The bears want the week to close near its low. That would create a sell signal bar on the weekly chart and make a test down to the 20 week EMA more likely. They will therefore sell rallies and try to get tomorrow’s close to be near the low of the week.
Overnight Emini Globex trading
The Emini is up 5 points in the Globex market. A big selloff like what happened yesterday is not as bearish as it appears. About 50% of it is related to the gamma of puts and option selling firms having to hedge. Since they got back to fully hedged by yesterday’s close, there is less chance of a big follow-through bear day today. After yesterday’s sell climax, there is a 75% chance of at least 2 hours of trading range trading beginning by the end of the 2nd hour. It often begins on the open.
Most big outside days are followed by inside days or days that fail to go much beyond the range of the outside day. If today opens above yesterday’s low, the bulls will try to keep today above yesterday’s low. If the bears break below yesterday’s low, the bulls will try to prevent a big selloff. Therefore, there will probably be sellers around yesterday’s low. Since today will probably open near yesterday’s low, there might be an early low of the day.
Yesterday might be the start of a swing down to the 20 week EMA. The bears will try to create another strong bear day. However, today will probably not gap down on the open. That means the bears were not as strong they could have been. This generates confusion, and confusion usually creates a trading range. Day traders do not believe that trends will last and they therefore bet on reversals.
EURUSD Forex market trading strategies
I have been saying for the past week that the rally would probably end with the parabolic wedge buy climax. I also said that the odds favored about 10 days and 2 legs down. The typical target is the bottom of the parabolic wedge, which is the September 10 low just above 1.15.
A reversal from a parabolic wedge buy climax usually has at least 2 small legs. In addition, the 1st leg down usually ends in the middle of the wedge, which would be between 1.16 and 1.1650.
If the selloff reaches the target at around 1.15, it typically ends. The chart then enters a trading range. The bulls will want a double bottom with the September 10 low, and the bears want the double top with the July high to lead to a breakout below the August low.
The odds favor a trading range over the next several weeks. This selloff will probably continue down to around 1.16, but there will probably be a 2 – 3 day rally within a week.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart sold off 80 pips in 2 legs over night. The bears want the week to close near its low. That would create a sell signal bar on the weekly chart at the 20 week EMA.
The bulls want a rally back up above the open of the week. However, the bulls are running out of time. The odds are that day traders will sell rallies and the candlestick on the weekly chart will be a bear sell signal bar. The odds are against a strong bull day today.
While the 5 minute chart sold off overnight, the most of the selling was in 2 brief bear breakouts. The majority of the overnight trading was within tight trading ranges. That makes a big trend today unlikely.
Since the bears have already accomplished their goal of creating a possible good sell signal bar on the weekly chart, they do not need lower prices this week. They will therefore simply try to prevent a strong reversal back up. Consequently, the bears will sell any 30 – 50 pip rally today or tomorrow and try to keep the market near the low of the week.
With the bulls unable to get a strong reversal and the bears not needing a strong selloff, day traders will most likely scalp today.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini rallied on the open, but then reversed back down to the open. Today was an inside day. After yesterday’s outside day, there is now an ioi Breakout Mode pattern on the daily chart. Because today’s range was fairly big, tomorrow could be a consecutive inside day.
Every day this week has oscillated around Monday’s open. Therefore traders are fighting over the body on the weekly chart. The bulls want a bull bar and the bears want a bear bar. This week so far is an inside bar on the weekly chart, which is also a breakout mode pattern. The breakout up or down will probably come next week.
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.