Emini pullback from strong December sell climax reversal
Pre-Open market analysis
Yesterday sold off on the open, but then formed a big trading range day. The selloff was in a bear channel, which is a bull flag. The odds favor a bull breakout of the channel today.
There is a magnet below at the December 24 high. It was a bear bar and therefore a bad buy signal bar. Some bears sold above and scaled in higher, correctly believing the Emini would pull back to their 1st entry price. Since the rally last week was strong, the Emini might have a 2nd leg up before testing the December 24 high.
The bulls have a magnet above at last week’s high. Last week is a buy signal bar on the weekly chart. However, that could be too far above to get there today. The bulls might have to wait until next week before trying again to get there.
The daily chart will likely be in a trading range for at least a few weeks. Consequently, traders will look for every move up or down to reverse within 3 – 5 days.
Overnight Emini Globex trading
The Emini is up 33 points in the Globex session. It will therefore gap above yesterday’s bear channel. Furthermore, last week’s reversal was strong enough to make a 2nd leg up likely. Finally, last week is a buy signal bar on the weekly chart. These factors increase the chance of a bull trend day today.
But, after 4 sideways days, traders will expect more trading range trading until they see a strong breakout up or down.
EURUSD weekly Forex chart in bear channel and wedge bottom
The EURUSD weekly Forex chart has been in a tight range for 10 weeks. It is therefore in Breakout Mode. There is always both a bull and bear setup. The bears have a yearlong bear trend. But the bulls have a wedge bull flag.
Prior breakouts over the past year came after a couple of months. In addition, Forex markets often begin swings in January. This increases the chance of a breakout within the next few weeks.
But, until there is a breakout, there is no breakout. Traders will continue to look for reversals every few days.
Overnight EURUSD Forex trading
Yesterday was a bull trend reversal day on the daily chart (not shown). It is a buy signal bar for today. Today rallied above yesterday’s high and therefore triggered the buy signal.
But, because the chart has been in a tight trading range, buy and sell signals typically fail. Today so far has reversed down 50 pips after triggering the buy signal.
Because the reversal down over the past 10 minutes was sharp, there probably will be some follow-through selling. However, day traders will still mostly look for scalps because of the 2 month tight trading range.
Since today is Friday, weekly support and resistance are important. This week is an outside down week. If the bears can close the week below last week’s 1.1343 low, that would slightly increase the chance of lower prices next week.
However, that is only minor. Traders need to see a clear, strong breakout above or below the 2 month range before they will look for swing trades. Until then, day traders will continue to mostly scalp for 10 – 20 pips.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
By going above last week’s high, the Emini triggered a weekly buy signal today. However, the bulls were unable to get above the February low. Therefore, there is still a gap below the 2018 trading range. But, the odds favor the bear rally getting above the February low 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.