Trading Update: Friday October 8, 2021
Emini pre-open market analysis
Emini daily chart
- Big gap up yesterday, creating a 7-day island bottom with the September 23 gap down. If it gaps down today, yesterday will be a 1-day island top.
- It is important to note that most island tops and bottoms are minor signals.
- Emini reversed down yesterday selling off from just below 50-day MA and closed near its low.
- For the bears, yesterday is a Low 2 sell signal and it formed lower high double top with the September 23 high.
- Because it did not have a big bear body and it followed 2 strong bull days, it is a low probability sell signal, which means a minor pattern.
- I have been saying that the Emini might form a trading range between the 50- and 100-day moving averages, and that still might be true.
- While it reversed up from a lower low double bottom with the September 20 low, it might reverse down from a double top with the September 23 high. Most trading ranges contain at least one double top and one double bottom.
- The Emini is in the middle of a bigger trading range that began in late July.
- The September 23 high is important since it was a major lower high after a buy climax.
- If the Emini breaks strongly above it, then the Emini should soon afterwards continue up to a new high. However, since the Emini has been in a trading range for almost 4 months, the breakout probably would not get far before there was another leg down.
- If there is a strong reversal down from around that high, there would be a double top lower high major trend reversal. Because of the buy climaxes on the monthly and weekly charts, the odds would then favor a move down to below 4,000 before the end of the year.
- After a bear bar in September on the monthly chart, there should be at least one more bear bar before the end of the year. That is what has happened with most buy climaxes over the past 10 years.
- On the monthly chart, September was the 3rd attempt to reverse down in an 18-month strong bull trend. A third attempt typically attracts profit takers, which usually results in 2 to 3 months of sideways to down trading.
- Today is Friday so weekly support and resistance can be important, especially in the final hour. The bulls would like this week to be an outside up bar, but last week’s high is 60 points above yesterday’s close and that might be too far to reach.
- The bears want a 2nd consecutive bear bar, but the open of the week is also about 60 points away and probably out of reach.
- This week therefore will probably be a bull bar. The bigger the body and the more it closes on its high, the stronger the buy signal bar and the more likely next week will be higher.
- The weekly chart has been in a Small Pullback Bull Trend for more than 60 bars. Traders should expect that strong type of bull trend will eventually transition into a weaker bull trend.
- The Small Pullback Bull Trend 1st must end. It ends once there is a pullback that is at least 50% bigger than any prior pullback in the bull trend.
- The biggest pullback was 10% and about 378.75 points in September 2020. A 50% bigger pullback would be either 15% or about 570 points. Both would result in a move below the 4,000 Big Round Number.
- There is currently a 50% chance that the Emini has begun a 15% correction.
- What about the debt ceiling and the Biden’s plans? None of it matters. The institutions have already priced both in.
- When the final news is in, whether it is good or bad, the market can go in either direction.
- How do you know what the institutions will have concluded? Do you watch an expert on CNBC? No, because there are always about as many bulls as bears. They have a 50% chance of picking the wrong expert.
- You simply look at the charts. If more institutional buyers think the market is cheap, given all that is known, there will be a rally. If they think it is expensive, the market will sell off. The news is never important. All that matters is how the institutions react to the news, and you can see that on the charts.
Emini 5-minute chart and what to expect today
- Emini is up 8+ points in the overnight Globex session.
- If the Emini does not fall below the Globex low before the day session opens, today should trade below the Globex low because the Globex low was a ledge bottom. That is 4 or more bars with identical lows in a tight trading range
- While yesterday was a lower high in the bear channel that began on September 3, it was a weak sell signal bar. Therefore, today will probably not be a big bear day.
- The bulls will try to keep the gap above Wednesday’s high open. Therefore, there should be buyers somewhere below yesterday’s low and above Wednesday’s high.
- If there is a trend today, up is more likely than down.
- Can today be a big bull day? The bulls hope that yesterday’s bear channel is a bull flag. They want to break above yesterday’s bear channel and resume the 2-day rally. Remember, the Emini will probably reach the 50-day MA soon. If today is a bull trend, that is an important magnet.
- After several days with big moves up and down, traders might be exhausted. That increases the chance of a lot of trading range trading today.
Yesterday’s Emini setups
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The EURUSD has been selling off in a tight bear channel since reversing down from a double top bear flag with the July 30 high.
- It should reverse up for at least a couple weeks from around a measured move down, which is 1.1420.
- It is near that target now, and it can reverse up at any time.
- Today triggered a Low 1 sell signal by going below yesterday’s low, but today reversed up and has a bull body. It broke above yesterday’s high, making today an outside up bar, which is bullish.
- The bulls want a reversal up from here. There would be a micro double bottom and a High 2 bottom with the October 1 high.
- Can it continue straight down to last year’s low at around 1.06? Probably not because a selloff from a double top bear flag typically will find profit takers at around the measured move target. That usually results in at least a couple legs up.
- Today is Friday so weekly support and resistance can be important. The bulls want a bull body on the weekly chart. This week is currently the 5th consecutive bear bar on the weekly chart. There has not been a streak of 5 consecutive bear bars in over 3 years so this week will probably have a bull body. That makes a bear trend unlikely today on the 5 minute chart.
- The open of the week is only 13 pips above today’s current high and therefore within reach.
- The monthly chart has been in a trading range for 7 years. There is no reason to believe it is about to end.
- Last year broke strongly above the March 9, 2020 high of 1.1496. That is the breakout point on the monthly chart, and it is therefore important support.
- On the weekly chart, there was an additional lower breakout point at the June 10, 2020 high of 1.1422. Since that is almost exactly at the measured move target, the selloff might dip below that as well.
- When a market is in a trading range and it gets near support, it typically falls below support before reversing up. Consequently, this selloff should continue down to below 1.15 and possibly 1.1422, whether or not there is a bounce for a couple weeks first.
- However, traders should then expect a rally lasting at least a few weeks and breaking at least a little above 1.1705.
- Why? Because that is the neckline of the double top and therefore a breakout point on the way down. Remember, in a trading range, the swings typically go past support and resistance.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
- Began with Trading Range Open. A Triangle grew into a bigger Triangle.
- There was a midday bear breakout and the day was then also a bear channel.
- The breakout failed and the Emini reversed up strongly.
- The rally failed to get above the open and reversed back down at the end of the day. Today was a trading range day that closed near its low. That increases the chance of lower prices on Monday. A gap down on Monday would create a 2-day island top.
- The Emini is in the middle of a 4-month trading range. It is also within a monthlong trading range between the 50- and 100-day moving averages.
- The odds are about 50% that the Emini has begun a 15% correction to below 4,000.
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
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Charts use Pacific Time
When I mention time, it is USA Pacific Time. The Emini day session charts begin at 6:30 am PT and end at 1:15 pm PT which is 15 minutes after the NYSE closes. You can read background information on the market reports on the Market Update page.