Emini trading range at start of China trade war
Pre-Open market analysis
Yesterday traded below last week’s low and therefore triggered a sell signal on the weekly chart. The weekly bears have a wedge rally and a double top bear flag. Yet, last week was only a doji and not a strong bear reversal bar. Furthermore, the prior 2 weeks were strong bull bars. Finally, the March high is a magnet and last week’s high did not get close enough to convince traders of an adequate test. These factors reduce the chance of a reversal down.
However, the weekly chart has been in a trading range for 5 months. Therefore, this reversal down could be the start of a bear leg in the range. If so, the selloff could test the bottom of the range. More likely, this is a minor reversal that will only last 1 – 3 weeks. The bulls will then again try to get above the March high.
Most days over the past several weeks had a lot of trading range trading, as did yesterday. Therefore, even if there is a big gap down, the odds are that today will spend a lot of time going sideways.
Overnight Emini Globex trading
The Emini is down 28 points in the Globex session. If it opens here, it will again fall below last week’s low. This would trigger the weekly sell signal a 2nd time. The minimum goal for the bulls today is to close the day above last week’s low of 2765.50.
Whenever there is a big gap down, there is an increased chance of a trend day. The bulls want an immediate strong rally. If they get 3 – 4 consecutive big bull bars, the day will probably be a bull trend day.
The bears want a trend from the open bear trend. While strong trends after big gaps are infrequent, they can be big. The bears would like a small pullback bear trend day, which would have the highest probability of lasting all day.
Most often, when there is a big gap down, the bears are hesitant to sell far below the average price. In addition, the bulls are reluctant to fight the overnight trend. Consequently, the Emini usually enters a trading range for an hour or more. The bears will look to sell a double top or wedge rally to near the EMA. The bulls try to get a breakout above the trading range and moving average, and then a measured move up.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart has consecutive outside bars (an oo pattern). This is therefore a micro double top bear flag. But, it is at support and after consecutive sell climaxes down to the May 29 low. The breakout below yesterday’s low has less chance of leading a 300 pip measured move down. However, it could lead to a 100 pip measured move down based on the height of the 3 day bear flag.
If the bulls get a reversal up from there, the bear flag would be a Final Bear Flag. Furthermore, the reversal up would be a lower low major trend reversal. Major reversal setups have a 40% chance of a bull trend. Most lead to a continuation of the trading range.
While the overnight selloff was strong and the 2 month bear trend is strong, a sell climax down to support usually leads to a trading range. That is still what is likely here. The bears need a strong break below a 100 pip measured move down for traders to conclude that the bear trend is resuming. If there is a reversal up from here or within 100 pips below, traders will conclude that the daily chart entered a trading range at the May 29 low.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart sold off 100 pips overnight from yesterday’s high to below its low. Consecutive outside days are more likely to lead to a trend when they reverse a trend. They are less likely to lead to a resumption of a trend. Therefore, bulls will look for a reversal back up over the next week.
The 5 minute chart has been in a 30 pip range for the past 4 hours. The bears want a bear breakout and a close below yesterday’s low. More likely, today will continue the overnight trading range. The minimum goal for the bulls is to have today close above yesterday’s low. That would weaken the bear case and increase the chance of more sideways days. A strong reversal up today is unlikely after such a strong overnight selloff.
Outside down days usually do not fall far below the prior day’s low. This makes further strong selling unlikely today. The minimum goal for the bears is a close below yesterday’s low of 1.1543. If there is not bull trend reversal, they will sell rallies for a test of 1.1543.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini reversed up strongly from a test of the May 22 high. That was the breakout point for the June rally. Last week is a sell signal bar on the weekly chart. The bulls managed to rally back above last week’s low, weakening the already weak sell signal.
While the Emini has sold off for 5 days, the past 3 days of the selloff have bull bodies. That represents buying pressure and is unusual in a selloff. It therefore reduces the chance of much lower prices.
The bears want to break back below that high and test the May 29 higher low of 2678.75. However, unless the bears start to create big bear bars, the odds are that this week-long selloff will be a bull back in a bull trend.
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.