Emini possible island top on weekly and daily charts
Pre-Open market analysis
The Emini gapped up last week and closed just above the week’s midpoint. This is good for the bulls this week. But, if today gaps down, there will be a 1 bar island top on the weekly chart. Also, that would create a 5 bar island top on the daily chart. A gap down any day this week would create an island top on the daily chart. Without that, the odds favor higher prices.
The weekly chart is in a tight bull channel. Last week was the 3rd push up the past 6 weeks. Therefore, there is a parabolic wedge rally. Because last week was a bull bar that closed above its midpoint, is a bad sell signal bar. Also, the bull channel is tight, which is bad for the bears. If this week triggers the sell signal, the bears will probably only get a 1 – 3 week pullback.
Overnight Emini Globex trading
The Emini is down 4 points in the Globex session, which is near Friday’s low. Today therefore might gap down and create both weekly and daily island tops. However, if a gap is small, it usually closes within the 1st hour.
But, it would still be a sign on weakness on the part of the bulls, and it could lead to sideways to down trading for several weeks. September is the weakest month of the year, and that can be self-fulfilling. If enough traders expect the worst, they can create a down month.
Because the Emini is testing the January all-time high, there is an increased chance of a big trend day up or down. This is true even though every day over the past week has spent most of the day going sideways.
EURUSD Forex parabolic wedge bull flag after parabolic wedge buy climax
I said several times last week the the parabolic wedge rally to a lower high would likely test down to the 20 day EMA, the August 23 low, and the 50% retracement. The overnight selloff is testing that support. Because a higher low is likely after the strong 3 week rally, this selloff should end between 1.1450 and the overnight low at around 1.1550.
The 2 day selloff is a parabolic wedge bear channel. This is easier to see on a 4 hour chart. Therefore, the odds are that there will be a couple legs sideways to up starting today or tomorrow.
Since a trading range is likely over the next couple of weeks, both the bulls and the bears will be disappointed. The bulls obviously did not like this 2 week selloff after a strong bull trend reversal. They also will be unhappy that this selloff will probably fall 50 – 150 pips further. However, the odds favor a higher low and a continuation of the trading range that began in June.
Minor EURUSD Forex weekly sell signal
The candlestick on the weekly chart last week was a small bear reversal bar. Since it was a lower high at the 20 week EMA in a 7 month bear swing, it is a sell signal bar for this week.
By trading below its low overnight, today triggered the weekly sell signal. But, last week was only a doji. In addition, the 2 prior weeks were strong bull bars. Finally, the 7 month selloff is a big bull flag. Consequently, the 2 week selloff will more likely form a higher low than resume the bear swing.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart sold off 60 pips overnight. It has been in a 20 pip tall tight trading range for 5 hours. Since there is room to the August 23 low and the 2 week bear channel is tight, the odds favor lower prices. Therefore, if there is a rally today, it probably will fail within 2 days.
However, a tight trading range late in a bear trend is usually the Final Bear Flag. As a result, a bear breakout will probably only last a day or two and then reverse up. Furthermore, the 2 week selloff is in a parabolic wedge. It therefore will likely reverse up in at least 2 legs, lasting at least a couple days. This should begin by the end of the week.
Since this week’s upside and downside are probably small, the odds favor a trading range on the daily chart. A trading range on the daily chart usually creates a lot of trading range trading on the smaller time frames. Consequently, day traders will look to scalp reversals.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini fell below last week’s low. While this triggered a weekly sell signal, it is a weak signal. Last week had a bull body and the weekly chart is in a tight bull channel.
The Emini had several big reversals today, and formed a trading range day. It reversed up from just above the January high. Since the reversal was not very strong, the Emini might have to drop below that high before the bulls will buy aggressively again. However, sometimes breakout tests like this are small, but lead to huge bull trend. An example is September 25, 2017. While unlikely, traders need to be prepared for a possible strong rally starting over the next few days.
Even though the daily chart is in a bull trend, most of the bars on the 5 minute chart have been within trading ranges for the past week. That is therefore likely again tomorrow. Traders will expect reversals.
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.