Emini technical selloff from historically overbought higher time frame charts
Today gapped above yesterday’s bear channel. However, the 1st bar was a doji bar in the middle of yesterday’s late selloff. A neutral bar in the middle of something is a sign of complacency. It therefore increases the odds of a trading range open. Furthermore, The bears failed to get a big gap down and immediate strong selloff. Therefore the odds are against a 2nd strong bear day. It is currently Always In Short, but this initial selloff will probably find support around yesterday’s close or low.
Today will probably be mostly a trading range day. Weekly support and resistance will be magnets, especially late in the day.
If there is a strong breakout up or down, today could still be a trend day. This open reduces the chances of that.
Pre-Open market analysis
I have said repeatedly over the past month that the odds of a 5 – 10% selloff was likely within a few weeks. I said that it was technical, based on how overbought the daily, weekly, and monthly charts were. Nothing has changed. This is a technical selloff and it is not due to fundamentals. While it has been extreme, the odds are that the monthly bull trend will resume within 1 – 3 months.
The Emini sold off yesterday, but closed just above Tuesday’s sell climax low. The bears hope that it is the start of a swing down on the daily chart. More likely, the daily chart will form a tight trading range or small wedge bottom over the next few weeks. This means that each day is likely to have an intraday reversal or be reversed on the next day, like the past 4 days.
Today is Friday and therefore weekly support and resistance can be important. The most significant prices are the January low, the close of 2017, and the 20 week EMA. All are around 2670 to 2080. This week’s current low and midpoint are also important.
Overnight Emini Globex trading
The Emini is up 1 point in the Globex market. Since yesterday was a sell climax day, there is a 50% chance of some follow-through selling in the 1st 2 hours. In addition, there is a 75% chance of at least 2 hours of sideways to up trading that starts by the end of the 2nd hour. The Emini will probably not have a big gap down. This increases the odds that yesterday was simply a test of Monday’s low. That means that traders should look for a possible early low of the day.
EURUSD near bottom of developing trading range
The EURUSD daily Forex chart has sold off for 6 days. Yet, the selloff lacked consecutive big bear bars closing on their lows. Furthermore, it is stalling just above the January 18 major higher low. Moreover, the 3 month rally was in a tight bull channel. Consequently, this 1st selloff is likely minor. This therefore looks like a bear leg in a trading range.
Because the current selloff is losing momentum and it near support, the bulls will try to get a double bottom with the January 18 low. The should create a 2 – 5 day rally over the next week. However, the top was a wedge buy climax. That typically leads to at least 2 legs sideways to down. Traders will therefore sell the rally, expecting at least one more leg down. The trading range will probably last for at least one more month.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart has been in a tight trading range for 2 days. In addition, it is at a support level. The bulls are looking for a bottom. Since the daily chart has been in a trading range for a month, traders should expect a dip below support before a leg up. Therefore, this 6 day leg down might have to fall below the January 18 bottom of the range before the bears will take profits and the bulls will buy.
Since the selloff is near support, the bulls can get a 150 – 200 pip swing up anytime in the next week. Day traders should look for a strong rally on the 5 minute chart. If they see it, they can hold for a swing trade. Less likely, there will be a strong breakout below the January 18 low. In the meantime, the range on the 5 minute chart is tight and day traders are scalping.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Today was a bull reversal day and a failed breakout below Wednesday’s low. It is therefore a High 2 buy signal bar with Wednesday. Yet, it is not a big bull day, and yesterday was a big bear day. The odds are that the Emini will continue to reverse every day or two and begin to form a trading range. However, the monthly chart is in a bull trend, and this selloff is a buy on the monthly chart.
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.