Emini triggered buy signal after FOMC but weak entry bar
Pre-Open market analysis
Yesterday was an FOMC report day. The report led to a break above Tuesday’s high. That triggered a buy signal on the daily chart. However, the Emini immediately reversed down strongly. It therefore was a terrible buy entry bar on the daily chart.
The bulls need strong buying over the next couple of days to make the buy signal lead to a bull trend. Without that, the Emini will remain in its 4 month trading range. Furthermore, it would have a 50% chance of testing the April and February lows.
The bears see yesterday as a sell signal bar on the daily chart. They need strong selling over the next couple of days if they are to test the bottom of the 4 month range.
The Emini has been sideways for 4 months. Therefore, the odds are that the bears will be disappointed by a lack of strong selling over the next few days. Trading ranges are more likely to continue than to break into trends. As a result, it is better to bet on reversals than on breakouts.
All trading ranges eventually break out. Traders need to see a strong breakout bar and a follow-through bar before they will believe that the trading range has evolved into a trend.
Overnight Emini Globex trading
The Emini is down 5 points in the Globex market. It therefore might gap down. If so, the gap will be small and therefore likely to close in the 1st hour.
Because yesterday was a sell climax, there is a 50% chance of at least 2 hours of sideways to up trading that begins by the end of the 2nd hour. There is a 50% chance of follow-through selling in the 1st 2 hours.
Look at the daily chart over the past month. Most strong moves up and down lasted only 1 – 2 days. When in a trading range, the bulls and bears are disappointed constantly. Hence, as strong as yesterday’s selling was, traders will look for a reversal up today or tomorrow.
EURUSD minor parabolic wedge bottom
The EURUSD daily Forex chart is in a strong breakout below a 4 month trading range. Since the selloff is in a parabolic wedge channel, it is climactic. In addition, it is just above the January 9 major higher low. Therefore, the odds favor a 150 pip bounce over the next couple of weeks to test the March 1 bottom of the early 2018 trading range.
The selling is so strong that the bulls might need a micro double bottom before the bounce will begin. So far, today is a bull inside bar in a bear trend. It is therefore a Low 1 sell signal bar.
But, since the selloff is climactic and near support, there are probably more buyers than sellers below today’s low. Consequently, many bears will take profits below today’s low and around 1.1900, expecting a breakout test rally to around 1.21 over the next couple of weeks.
Since the bear channel is tight, the odds are that the 1st reversal up will be minor. Hence, the bears will sell again around 1.2100 and the March 1 low, which will be around the 20 day EMA.
Bull scalpers understand this. They will therefore begin to buy below bars, looking for 50 – 100 pips profit.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart rallied 70 pips overnight. Since the daily chart is in a sell climax, day trading bulls will look to buy selloffs to prior lows, looking for 30 – 50 pip swings up. Swing trading bulls will buy low and look for a test of 1.2100 over the next 2 weeks.
A sell climax usually transitions into a trading range. Day trading bears will sell rallies, but they will take profits around prior lows. Swing trading bears will wait to sell a rally above 1.2100.
The bars and legs are big enough for bull and bear scalpers to look for 20 – 30 pips profit.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Today was a bull reversal day, and it is a buy signal bar for tomorrow. It is a High 2 buy setup with the April 25 low. This increases the chance of a bull trend day tomorrow. However, the odds are that this week will still be a bear bar on the weekly chart. The bulls would need several strong bull trend days next week to make the weekly chart bullish again.
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.