Emini rally hesitating at April high during Israel embassy crisis
Pre-Open market analysis
The Emini daily chart had an 8 bar rally with shrinking bull bodies for 4 days. The odds were that yesterday would not be a bull trend day. It was a trading range day.
The bears see yesterday as a sell signal bar on the daily chart for a failed breakout above the April high. The bears today will probably get a break below yesterday’s low to trigger a minor reversal down. While a 1 – 3 day pullback is likely, a reversal into a bear trend is is not. The bears need several big bear days to retake control.
Despite the strong rally, the bears still have a 40% chance of a break below the 4 month range until the bulls get a much stronger reversal up. This is because the daily chart is in a trading range. Trading ranges constantly form strong legs up and down. But, most breakout attempts fail. Until there is a breakout, there is no breakout. The momentum up over the past 2 weeks favors the bulls. However, they cannot have more than a 60% chance of a bull trend while the Emini is still in a trading range.
Overnight Emini Globex trading
The Emini is down 16 points in the Globex session. It will likely trade below yesterday’s low and therefore trigger a sell signal on the daily chart. Since the daily chart is in a trading range, the size or duration of the selloff will disappoint the bulls. An obvious way to do that is for the selloff to fall back below the April 18 high of 2718.00. That is the breakout point.
However, after an 8 day strong rally, the selling will probably last only 1 – 3 days before the bulls will buy again. If the selloff is strong, then a trading range for a few days will be likely. If the selling is weak, the bulls will probably get back above yesterday’s high this week.
But, the rally has been climactic. There is therefore an increased chance of a big bear trend day today. In addition, the bull climax at the resistance of the April high will probably lead to a few days of sideways trading.
EURUSD Forex market trading range between 1.18 and 1.20 after parabolic wedge sell climax
The EURUSD daily Forex chart rallied 200 pips to 1.2000. I wrote several times over the past week that the bears would sell there. I also have been saying that the selloff was extreme and climactic. Therefore, the odds favor a pause, and at least 2 legs sideways to up. The 3 day rally was strong enough to make a 2nd leg sideways to up likely. Consequently, the 2 day selloff will probably find buyers between today’s low to around last week’s low. Therefore, even if the bear trend resumption falls below last week’s low, there will probably be buyers below around 1.18. The bears will take profits and the bulls will buy, betting on a trading range after the sell climax.
The next support below last week’s low is the December 12 low of 1.1717. If today’s selloff continues to that level over the next few days, the odds favor at 200 – 300 pip rally from there.
Can the daily chart continue down to the November 7 low of 1.1553 without another bounce? That is unlikely because the parabolic wedge sell climax is telling us that the bears are probably exhausted. Therefore a trading range between 1.18 and 1.20 is likely over the next few weeks.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart has sold off 90 pips overnight. The selling over the past 2 hours has been very strong. It is therefore climactic. A sell climax usually means that the bears are exhausted. They therefore usually take profits and wait for at least 10 bars before selling again.
Ten bars is about an hour. Even if the bears sell again after a 1 hour 20 – 30 pip bounce, there is support at last week’s low and the 1.18 Big Round Number. Therefore, the bulls will begin to look for reversals. Since a bull trend is unlikely immediately after a strong bear breakout, the bulls will scalp for 10 – 20 pips.
Since the bears know that this selling is climactic, they will soon take profits. Because a 2 – 3 hour trading range is then likely, they will sell 20 – 30 pip rallies to around the the 20 bar EMA for 10 – 30 pip scalps.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
By trading below yesterday’s low, the Emini triggered a sell signal on the daily chart. However, the 8 day rally was strong. Therefore, this 2 day selloff is more likely going to be a bull flag than a bear trend. The bears need follow-through selling over the next few days if they are going to convert this bull flag into a bear trend.
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.