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The Emini opened with a big gap down, yet stalled. The early tight trading range increases the chances of a lot of trading range price action today. Furthermore, it reduces the chances of a strong trend up or down. In addition, this will probably be a trading range open. The Emini will probably have to go sideways to up to the moving average. The bears will look for a double or wedge top to sell. The bulls want a strong breakout above the moving average and yesterday’s low. The odds favor a sideways day, or a weak bear channel with lots of trading range trading. Yet, if there is a strong breakout up or down with follow-through, traders will trade the swing.
Pre-Open market analysis
The Emini last week broke below the neck line of a double top on the daily chart. Because the context is good for a reversal down to the December close and the breakout bar was big, the odds are that the swing down has begun. Yet, the follow-through has been bad.
Even if the Emini rallies up to the top of the big bear bar from last week, the odds still favor a bear trend on the daily chart for the next couple of months. Hence, the bulls need more than a test of last week’s high. They need to break strongly above the lower high from two weeks ago to make the bears give up.
The weekly chart’s high was extremely far above its moving average. Hence, the odds are that the Emini will be unable to rally much above that high without 1st pulling back to the weekly moving average. Therefore, even if the Emini makes a new high over the next week or two, it probably will fail. The buy climax on the weekly chart was extreme and at important resistance. Hence, bulls are hesitant to buy high and bet that the climax will extend further. Instead, they therefore prefer to buy a pullback to support, like the weekly moving average and the close of last year.
Overnight Emini Globex trading
The Emini is down 20 points in the Globex market. As a result, it will probably have a big gap down today. While it is possible for the selloff to continue all day, the Emini will be far below the moving average on the 5 minute chart. Bears will therefore be less eager to sell. Therefore, the Emini will probably go sideways to up within the 1st hour until it gets closer to the average price. At that point, the bears will start selling again.
Since the weekly and monthly charts are in strong bull trends, bulls will buy this correction on the daily chart. Yet, no one knows when the monthly bulls will feel there is value. The odds favor a test of the weekly moving average and last year’s close. Hence, unless there is a strong reversal up, the odds are that traders will sell rallies until the Emini falls to major support.
Big gap down
The bulls today want this big gap down to be a bear trap. They therefore might buy the open and create a huge bull trend day. Because the context is so good for the bears, the odds are against this gap down being the end of the selloff. Yet, if the bulls can close the gap over the next few days, traders will begin to believe that the correction is over.
More likely, today’s gap down will lead to at least a measured move down. When there is a big gap like this, the Emini usually goes sideways for a few days. It decides whether to continue down or reverse up. Therefore, the odds favor a lot of trading range trading for few days instead of a strong trend up or down. Yet, the odds then favor lower prices. The bulls need a strong reversal up this week to change the minds of traders, and that is unlikely.
EURUSD Forex market trading strategies
The EURUSD Forex chart is breaking above the top of a 5 month trading range. The bigger the breakout bar is, the more likely there will be follow-through buying. Furthermore, the more the bar closes on its high, the more likely the rally will continue. In addition, the earlier there is strong follow-through buying over the next few days, the more likely the breakout will reach targets above.
The first target is a measured move up from the height of the most recent bull swing. That is therefore the height of the rally from the right shoulder. Of the EURUSD Forex market rallies above that, the next target is a measured move up based on the height of the entire 5 month range. The most important target is the November 9 top of the strong bear reversal.
The bear case
Since most breakouts fail, the odds are against the rally continuing up to the targets. Yet, this is a good pattern. In addition, the breakout so far is strong. The bears need to stop the rally and erase signs of bull strength. Therefore they need to prevent the creation of consecutive big bull trend bars closing on their highs. Furthermore, they need to create signs of strong bears, like a big bear reversal bar within the next day or two. In addition, they probably need at least a micro double top and a strong reversal down.
Since the context and the current breakout favor the bulls, the odds are the best the bears can probably get this week is a halt to the buying. Hence, a reversal within the next few days would probably be minor. It would therefore more likely lead to a small trading range, and not a bear trend.
Overnight EURUSD Forex trading
The EURUSD Forex market is breaking above the top of a 4 week wedge top. If the bulls continue the overnight strong breakout, the market cycle will start over. This means that the breakout will eventually weaken into a bull channel, and then eventually into a trading range.
While most breakouts above bull channels fail, this one has been strong overnight. It therefore will probably have at least a 2nd leg up over the next few days. If it continues to grow over the next couple of days, the odds will favor a measured move up based on the height of the 4 week wedge rally. Since that wedge rally is also the rally up from the right shoulder of the head and shoulders bottom, there is an added reason for the bulls to succeed.
Since the overnight rally had 3 consecutive buy climaxes, on the 60 minute chart, bulls will probably take partial profits. As a result, today might enter a trading range. Yet, the odds still favor at least one more push up over the next couple of days.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
While the bulls reversed the Emini up after a big gap down, they need to get above last week’s high to make traders believe that they have regained control. The odds still favor a move down to the December close. Yet, today is a buy signal bar so the Emini might rally again tomorrow.
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.