Emini sell climax test of February and 2018 low
Pre-Open market analysis
Yesterday, the Emini bears broke below the February low and formed a new low of the year. It closed slightly above. I wrote over the weekend that the year will probably close above the February low and below last year’s close. That is still likely, given that the year is a trading range.
Yesterday was the 5th consecutive bear trend day on the daily chart. That is unusual for 2018 and therefore unsustainable. It makes it likely that today or tomorrow will be a bull day.
Overnight Emini Globex trading
The Emini is up 16 points in the Globex session. While yesterday was in a strong bear trend, it was climactic. It was probably just a sell vacuum test of the February low. Yesterday’s late reversal up was strong and probably the start of a trading range.
When a market breaks below major support, it usually pulls back. However, it usually falls again below that support. At that point, traders watch to see if the breakout will continue or if it will reverse up a second time. Therefore, traders expect another test of the February low today.
Because yesterday was a sell climax, there is a 75% chance of at least 2 hours of sideways to up trading today, beginning by the end of the 2nd hour. There is also a 50% chance of follow-through selling in the 1st 2 hours.
But, there is only a 25% chance of another big bear day. This makes sense because of the uncertainty of tomorrow’s FOMC announcement. That is a potential catalyst. The Emini might wait until then before deciding whether to collapse down to the monthly bull trend line below 2400 or reverse up.
After 5 bear days on the daily chart, today or tomorrow will probably be a bull day. Therefore, the bulls will look for buy setups if today falls below the open. This is especially true in the final hour.
EURUSD Forex double bottom higher low major trend reversal ahead of FOMC
The EURUSD daily Forex chart has been in a tight trading range for 8 weeks. It therefore has both buy and sell signals. Yesterday was a good buy signal bar for a double bottom higher low major trend reversal. This is a credible buy setup. However, the probability of a swing up is only 40%. Traders wanting higher probability will wait for a strong breakout above the December 12 lower high of 1.1444.
The bears want this breakout to reverse, like all of the other breakouts up and down for the past 2 months. They then want a breakout below the double bottom and then the November low.
Tomorrow’s FOMC announcement is a potential catalyst for a big move up or down. Furthermore, currencies sometimes begin moves around the 1st of the year that last for months. Consequently, traders should be ready to switch from trading range trading to trend trading within the next few weeks.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart rallied 70 pips overnight in a tight bull channel. It broke above yesterday’s high and triggered a buy signal on the daily chart.
However, it then sold off 30 pips in a tight bear channel. That creates a Big Up, Big Down move, which means Big Confusion. A strong minor reversal usually leads to a trading range. The odds are that there will be a test of the overnight high today.
But, the bars are small and most overlap several other bars. This is not how a strong breakout typically looks. Therefore, while the daily chart triggered a buy signal, the 5 minute chart will probably be in a range today. Traders might be waiting for tomorrow’s FOMC announcement.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini was in a trading range for a few hours. Then, the bears got a double top lower high major trend reversal. The selloff fell below the February low and yesterday’s low. After a strong rally that failed to get back to the open, the Emini collapsed into the low. By closing below the February low, today was the new low and low close of the year.
Tomorrow’s 11 a.m. PST FOMC announcement will probably create a big move. It can be up, down, or both. Traders should be flat going into the report and not trade again until at least 10 minutes later. Because the Emini has had many big reversals over the past 2 month, there is an increased chance of a big trend day up or down.
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.