Emini testing bottom of bull channel at around 2860
Pre-Open market analysis
The Emini has sold off without a pullback for 7 days. It is getting vacuumed down to the bottom of the bull channel. There are two bull trend lines. The 1st is just below Friday’s low, and the Emini will probably get there within a week by trading mostly sideways.
While the bulls want a reversal up from that trend line support, they will probably need a micro double bottom. This is because after 7 days without a pullback, the bears will sell above the prior day’s high. As a result, the upside is limited for at least a couple of days.
Can the bears get a strong break below the channel and then a test of the broader bull channel’s bottom around 2820? Of course, but the odds are that there will be at least some buying around the 2860 bottom of the tighter bull channel.
Overnight Emini Globex trading
The Emini is up 8 points in the Globex session. However, after 7 days without a pullback, the odds are that there are sellers above Friday’s high. In addition, the bull trend line below Friday’s low is still a magnet. Consequently, the bulls will probably not be able to hold above Friday’s high for more than a couple of days.
But, 7 days without a pullback is extreme and therefore climactic. Consequently, there is an increased chance of a 1 – 3 day rally. Emini day traders will look for a swing up today, especially if the bulls can break above the 60 minute EMA and the 7 day bear trend line on the 60 minute chart.
Can the bears get a collapse today? Unlikely. However, if there is a strong break below the 7 day bear channel, day traders need to sell. It never matters if something is unlikely if it is happening. Day traders trade what is in front of them, not what they thing should be in front of them.
EURUSD Forex market trading strategies
Last week, I said that the daily chart would have 2 legs down to around the August 23 low and the 20 day EMA after a parabolic wedge rally. The bears achieved their goal overnight.
The bears now have a head and shoulders top over the past 3 weeks. However, only 40% of reversals actually lead to a reversal. Furthermore, every head and shoulders top is also a triangle bull flag. There is a 60% chance of sideways to up trading.
Even if the bears get a few days down below the neck line, the daily chart had a strong bull trend reversal that began on August 15. Therefore, the odds are that the bulls will buy any selloff that reverses up from above that low. The bears need a strong break below that support before traders will believe that the bears have regained control.
The odds favor the bulls over the next several weeks. Since the daily chart is back in a 5 month trading range, it might trade sideways here for many more weeks before breaking above the July 31 top of the final leg down. But, the odds favor the breakout.
Because of the trading range, traders will take profits after ever few days up or down. In addition, when the market is low, like today, they buy. When it is near the top of the range around 1.17, they sell. The result is a continuation of the range.
I wrote about this repeatedly in May and June. Every time there was a strong leg up or down, I said that a reversal was more likely than a breakout. That is again true.
Overnight EURUSD Forex trading
The EURUSD 5 minute chart dipped 4 pips below the 2 week double bottom and then reversed up 60 pips over 3 hours. This is because most traders believe that the head and shoulders top is a minor reversal. They therefore bet against the bear breakout.
The 5 minute chart has been sideways for 3 hours. If the bulls can close the day near its high, today will be a good buy signal bar on the daily chart. There is therefore an increased chance of a resumption of the overnight bull trend this morning.
But, the daily chart is in a trading range. Therefore, the odds constantly favor disappointed bulls and bears. For example, if today closes 20 or more pips below today’s high, the buy signal bar on the daily chart will be weak. The bulls tomorrow will be less willing to buy above today’s high. That could result in a few sideways days around 1.1550. The bears would then try again to break below the 3 week head and shoulders top.
Since the rally stalled over the past 3 hours, there might not be much movement left for the remainder of the day. Also, 1.16 has been both support and resistance over the past 5 days, and it is only 20 pips above.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Today was the 1st breakout above a 7 day bear micro channel. As expected, there were sellers above Friday’s high. But, the selloff was not strong and today was a trading range day. The bulls might get a 2nd day above the micro channel, but the odds favor a test of the bull trend line on the daily chart, which is now around Friday’s low. The Emini can get there by going sideways or down this week.
Since today was a failed breakout above the 7 day bear micro channel, it is a sell signal bar for tomorrow. However, there will probably be buyers around the bull trend line, which is around Friday’s low.
Last week was a bear bar on the weekly chart after a 6 bar bull micro channel. It is therefore a sell signal bar for this week. But, the bull channel on the weekly chart is tight. Therefore, this is a minor sell setup.
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.