Emini weak sell signal testing October sell climax low
Pre-Open market analysis
By falling below Friday’s low, the Emini triggered a sell signal on the daily chart. But, Thursday and Friday were big bull days. Therefore, Friday is a low probability sell signal bar. Consequently, a continuation of the 5 day tight trading range is more likely than a bear trend. However, if today is also a big bear day closing far below last week’s low, the odds will shift in favor of a test of the October low.
Overnight Emini Globex trading
The Emini is down 33 points in the Globex session. It will therefore have a big gap down. But, when there is a big gap down, there is an 80% chance of at least one reversal in the 1st 90 minutes. The bears do not want to sell far below the average price (the EMA). In addition, many bulls will see the selling as overdone. They will be willing to buy for scalps.
Typically, the bulls will look to buy either a wedge or double bottom for a possible early low of the day. Also, the bears will look to sell a wedge or double top near the EMA for a possible early high of the day.
There is only a 20% chance of a trend from the open up or down after a big gap opening. When the big gap is down, like today, if there is going to be a trend day, down is more likely.
EURUSD daily Forex chart beginning 1 – 3 day pullback after buy climax
The EURUSD daily Forex chart rallied strongly for 5 days. Since every trend up or down over the past 6 month pulled back by the 5th or 6th day, this week was likely to have a pullback. Today might be the start.
Since 5 bull days represents strong buying, the bulls will be eager to buy again. That means the pullback will probably last only 2 – 3 days. However, it might last a little longer and reach the October 31 low.
The bears have another lower high in the bear channel that began on October 16. But, after 5 bull days, they will probably need a micro double top before they can test down to the November 12 low. Consequently, they will take profits between 100 – 150 pips down from today’s high.
I said over the weekend that last week was a buy signal bar on the weekly chart, but with problems. The 8 week tight bear channel made a big rally this week unlikely. Also, because last week’s range was big, many bulls did not want to buy above its high. The risk would be too big. Instead, they would look to buy a 50% pullback. That is currently around 1.1350.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart reversed down 60 pips so far overnight. This is probably the start of a 1 – 3 day pullback to around 1.1350. Consequently, the bears will sell rallies. Since the chart has been in a 30 pip tight range for the past 5 hours, the bears are mostly scalping. But, some will hold for around a 100 – 150 pip pullback over the next 2 – 3 days.
In addition, after a 5 day rally, the bulls will buy reversals up. However, since the bulls are exhausted, they will only scalp for the next couple of days.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini had a big gap down today. After a rally from a parabolic wedge bottom, it sold off from a wedge top. It then remained in a trading range, but closed below and near the open.
A gap up within the next few days would create an island bottom. That is a minor reversal pattern. In general, a big gap is exhaustive and the market usually has to go sideways for a few days. That is what is likely here. This is especially true since tomorrow and Friday will have less trading because of Thanksgiving.
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.