Emini weak reversal up from close of 2017
Pre-Open market analysis
Yesterday formed a good buy signal bar on the daily chart. It reversed up from below the sell climax low from 2 weeks ago. This is a lower low double bottom.
After a big gap down and early selloff, the Emini reversed up from within 2.5 points of last year’s close. Is that close enough for a sustainable rally? We’ll see. The cash index came within 10 points, which is probably not close enough. Therefore, there might be one more leg down.
A reversal up at that point would be from a wedge. Furthermore, the selloff would have accomplished its major goal of testing below last year’s close. There would be a higher probability of a trend up from there for the rest of the year.
The rally on the 5 minute chart did not have the urgency or relentlessness that typically happens at major bottoms. It can always come in the next few days, but its absence yesterday reduces the odds that this is going to be the final bottom.
The next few days will therefore give traders important information. If the Emini begins to form a series of bull bars closing on their highs, then the low will probably hold. The bulls will try to get a yearend rally.
But, if the bulls fail to show strength, the odds will favor a test of the close of last year on the cash index. Furthermore, there is still a 40% chance of a test of the February low.
Buy signal for double bottom at support
Yesterday was a good buy signal bar for a double bottom reversal up from support on the daily chart. Therefore, there is an increased chance of a bull trend day today. Additionally, today will probably have to go above yesterday’s high to see what is there.
If the buy signal triggers on the daily chart, will there be strong follow-through buying and then a big bull trend day? If so, the odds will be better for a reversal up on the daily chart. Alternatively, if the Emini triggers the buy, but forms a doji day or a bear day, traders will suspect that the bottom is not in. That would increase the chances of at least one more new low after 1 – 3 days of sideways to up trading.
Overnight Emini Globex trading
The Emini is down 5 points in the Globex market. Yesterday was in a bull channel on the 5 minute chart. A bull channel typically has a bear breakout and then transitions into a trading range. That is what is likely today.
Because yesterday was a good buy signal bar at support on the daily chart, there is an increased chance of a strong bull trend day today. But, because the 5 minute chart lacked consecutive big bull bars closing on their highs, the rally was not as strong as it could have been.
A rally from major support usually is very strong. While yesterday’s range was big, the appearance of the bars showed that there was not the urgency that typically comes at a major low. The bulls might try again to create those bars today. However, because they failed yesterday, the probability of a major low is less.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart is forming a big bear bar today when a reversal up was more likely. This is a Bear Surprise Bar. Surprise Bars trap bulls into bad longs and bears out of good shorts because traders tend to bet in the direction of higher probability. Consequently, many bulls will sell out and bears will short on the 1st bounce. This typically results in at least a small 2nd leg sideways to down.
While the probability is still that the bulls will get a reversal up from above the August 15 low, it is now close to 50%. If the bears break below that low, there is a 60% chance of a failed breakout and another reversal up.
The bears need consecutive big bear bars closing below that low before traders will believe the the breakout will lead to a swing down. They would see the chart as having a double top with the July 9 and September 26 highs. Because that pattern is 500 pips tall, the target would be 1.08.
Nested wedge bottom
There is a wedge bottom with the September 10 and October 9 lows. In addition, there is an 8 day wedge in the 3rd leg down. This is a nested wedge, which has a slightly higher chance of a reversal up. But, the bulls will probably need a micro double bottom and a good buy signal bar within the next few days before they can get their reversal up.
The bears want today to create a measuring gap for a 200 pip measured move down. That would result in a breakout below the August 15 low. Since the chart is near the bottom of a 6 month trading range, reversals are more common than successful breakouts. Consequently, the odds are that the month-long selloff will reverse up. This is true even if the bears get a break below the August 15 bottom of the 6 month range.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart sold off 100 pips overnight. Since the chart has a wedge bottom, it will try to reverse up for a couple of legs over the next 2 hours. But, since the selloff was surprisingly strong, the best the bulls will probably get today is a 50 pip tall trading range.
The selloff has been in a wedge channel on the 5 minute chart over the past 5 hours. In addition, the low is at the bottom of wedges on the daily chart. This reduces the chances of much lower prices today. Therefore, the 5 minute chart will likely transition into a trading range today.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
I said yesterday and this morning that yesterday’s rally lacked the consecutive big bull bars that are typical at a major low on the daily chart. Furthermore, I said that the cash index turned up from about 10 points above the close of last year. That is not close enough.
As a result of these problems, the Emini and S&P500 cash index today sold off and closed below last year’s close. The selloff therefore erased all of the gains of the year.
Because the Emini oscillated around last year’s close for the 1st half of the year, it might do that again. This is especially true going into the election in 2 weeks. There is no sign of a bottom yet, and the next support is the May low at around 2600.
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.