Emini trend resumption up, but possible small double top
Pre-Open market analysis
The Emini gapped up yesterday and entered a trading range after a 50% pullback. The odds favor a breakout above last week’s high this week. Because yesterday gapped up and was a small bull day, the odds favor trend resumption up and higher prices today or tomorrow.
The bears want the breakout to fail. But, they will need at least 2 – 3 big bear bars on the 5 minute chart before traders will conclude that today is a bear trend day.
If the bulls get a breakout above the April 18 high, the bears will try for a reversal down. This is because there would then be a wedge rally that began April 18.
There is a 60% chance that this rally will test the all-time high within a couple of months. Since the daily chart is still in a trading range, there is always at least a 40% chance of a lower high and then a break below the February low.
Overnight Emini Globex trading
The Emini is up 5 points in the Globex session. The bulls hope that yesterday’s gap up was a bull breakout on the 5 minute chart and that yesterday’s trading range was a bull flag. They therefore want trend resumption up today. Therefore, bulls will look for a rally above yesterday’s range in the 1st hour today.
The bears want either a reversal down or at least a continuation of yesterday’s range today. If they get more trading range trading, they will try to create a major trend reversal down.
Since the past 7 days have been trading range days on the 5 minute chart, that is likely again today. Yesterday’s gap up increases the chances of a trend day up or down.
The bulls are trying to break above last week’s high. But, they need more than a breakout. They need a big rally far above it before traders are convinced that the rally up to 2800 is underway.
If the breakout above the 3 month triangle continues to be weak, as it has been for a week, there will be a 50% chance of a reversal down on the daily chart. The lack of a strong breakout on the daily chart increases the chance of a big bear day this week.
EURUSD Forex market has a buy signal bar for a minor reversal
The EURUSD daily Forex chart is in a 4 week sell climax. Since it contains several small sell climaxes, it is extreme. Now, it is testing support at the December 12 major higher low. These factors make a transition into a trading range likely.
The final leg down from the minor reversal up to 1.20 was in a tight bear channel. Therefore, the bulls might need a micro double bottom or one more push down to a wedge bottom before they can begin a test up to the EMA, and ultimately to 1.20. That is what the market is deciding this week. However, there is a 60% chance that either yesterday will be a minor bottom, or there will be one more brief low and then a minor reversal up.
By minor reversal, I mean a bull leg in what will become a trading range. Trading ranges on the daily chart have lasted 1 – 2 months over the past few years. In addition, the legs up and down usually last 1 – 3 weeks subdivide into smaller legs. Therefore, once the minor rally begins, there will probably be a couple legs up over 2 – 3 weeks to around the 20 day EMA.
Then, the bears will sell again. This will result in a test of the bottom of the range. The bears will take profits there and the bulls will buy again. This process will likely repeat many times and the result will be a trading range that is about 300 pips tall and lasts at least 1 – 2 months.
Can the bears continue the selloff down to the November 7 low around 1.1500 before the trading range begins. Yes, and there is currently a 40% chance that this will happen.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart had a 70 pip rally overnight. By going above yesterday’s high, the rally triggered a minor buy signal on the daily chart. A pullback over the past hour retraced 50% of that rally.
Traders are deciding if a 1 – 2 week rally began yesterday or if there will be one more minor low first. When there is uncertainty, traders take quick profits. The result is an increased chance of a trading range day today. However, bulls trading the daily chart will be will begin to buy below lows on the daily chart and scale in lower. Day traders know this, and they will look for reversals up from around yesterday’s low.
The bears know that any rally on the daily chart will be minor. However, a rally could last a couple of weeks. Therefore, they will look to sell rallies at resistance. Furthermore, they will take profits near support. The result will be trading range on the daily chart.
A trading range on the daily chart increases the amount of time that the 5 minute chart is also in trading ranges. As a result, day traders will be scalping more. Since the daily bars are big, day traders will be scalping for 20 – 30 pips. As the range shrinks, they will switch to 10 pip scalps.
Since the daily chart is entering a trading range, day traders will look for reversals around the high and low of any of the prior 1 – 5 days.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Today was an outside down day on the daily chart, which is a sign of strong bears. Since the Emini also reversed down from above last week’s high and last week had a small range, the bears hope to get an outside down week. That means they now want a break below last week’s low before the end of the week.
Since that would be a further sign of strong bears, it would increase the chance of a test back down to 2700. Consequently, it would lower the probability that the 4 month correction has ended. Yet, the probability would only fall to 55% from 60%. Therefore, the odds would still favor the bulls over the next month. The bears need at least 2 more weeks down before traders will conclude that the odds favor another test of the February low.
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.