Emini testing January high ahead of unemployment report
Pre-Open market analysis
The Emini sold off strongly yesterday, but reversed up from a dip below the January high. In fact, it rallied back above last week’s low. Therefore the bulls are hoping that this is just a test of major support.
However, the week is now an outside down week and the weekly chart is overbought. Yesterday might be a Give Up bar on the daily chart. If the bulls are giving up, the bears will probably get a couple legs down to around the 20 week EMA.
When there is a breakout, traders watch for follow-through. If today is a bull bar closing on its high, the bulls will expect the breakout to fail. They will then buy next week.
There is even a 30% chance that today will rally back above last week’s high. That would make the week outside up after being outside down. This would be a sign of strong bulls.
Since the weekly chart is overbought, the odds are that there will be lower prices over the next 2 weeks. Day traders will look to sell rallies to resistance, like the 60 minute EMA and last week’s low.
Because yesterday was a sell climax, there is a 75% chance that today will have at least a couple hours of sideways to up trading, beginning by the end of the 2nd hour.
Overnight Emini Globex trading
The Emini had a brief rally and then a brief reversal down on the unemployment report. As was likely after yesterday’s sell climax, it traded sideways overnight. It is currently down 6 points in the Globex session.
Yesterday’s late rally began at the January high and ended at last week’s low. These are important prices and the Emini might trade sideways within this range today.
Because today is Friday, there is an increased chance of a trend up or down in the final hour. Since last week was a sell signal bar on the weekly chart, the bears want today to close below last week’s low. Additionally, they would like the week to close below the September high. If they get either or both, it would increase the odds of lower prices over the next 2 weeks.
The bulls always want the opposite. But, to erase yesterday’s damage, they would need today to close back above last week’s high.
Yesterday’s big late reversal up created confusion. That usually results in at least a couple trading range days.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart sold off for 6 days down to support. Wednesday was an especially big outside down day and therefore climactic. It and yesterday are at the support of a 50% pullback from the rally from August 15, the September 10 higher low, and the 1.15 Big Round Number. This will probably halt the selling for at least a week. Consequently, bulls will buy below the prior day’s low and on reversals up.
Since the selling was strong, the bears will sell the 1st reversal up. The high of a sell climax is a magnet because weak bears put their stops just above. This will probably result in a test of Wednesday’s high and 1.16 within a week.
But, when the selling is as strong as this has been, the bears know that the 1st reversal up is typically minor. They therefore will sell the 1st rally to resistance. Other resistance above is the 20 day EMA and a 50% pullback, which is around 1.1650
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart briefly bounced on the unemployment report. The report therefore so far appears unimportant. Because the daily chart has a sell climax down to support, day traders expect a trading range. They will therefore buy around the prior day’s low and on reversals up, and sell around the prior day’s high and on reversals down.
Furthermore, they expect that strong breakouts will not have strong follow-through as long as the 6 month range continues. This will make them look for reversal setups rather than strong trends. The developing small trading range will probably last for at least a week. The low will probably be around yesterday’s low or within about 50 pips below. Traders will look for a top above Wednesday’s high up to around 1.1650.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini sold off strongly to just above the September 7 low and the bull trend line. It reversed up sharply and closed back above the January high. The Emini is still deciding if the breakout above the January high will continue up to the measured move targets on the weekly chart. If the bull trend does not resume soon, the bulls will give up and wait to buy lower.
The 2 day selloff was surprisingly strong. That makes at least a small 2nd leg down likely over the next few weeks. However, today’s reversal up was strong enough so that the Emini might go sideways to up for a week or more before the 2nd leg down begins. The reversal up creates confusion, and confusion usually leads to at least a day or two of sideways trading.
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.