FOMC rally created island bottom
The Emini sold off below yesterday’s low on the open. Yet the bears were unable to create big bear bars. The bulls want the selloff to reverse up from the test into yesterday’s gap and of the open of the month. Because yesterday was a small day, if the bulls get a reversal, today could rally and become an outside day.
The bears want a Trend From The Open Bear trend. They then want to close the gap below yesterday’s low. While the Emini is now Always In Short and there are magnets below, the lack of big bear bars make the selloff more likely a bear leg in a trading range rather than in a bear trend. The Emini will probably have a swing up that begins by the end of the 2nd hour. The odds are that this selloff will not be the start of a bear trend day. Yet, if the bears begin to get big bear bars, they might succeed in closing the gap.
Because the selloff from yesterday’s high has been in a tight bear channel, the bulls might need a micro double bottom before they can reverse up. However, if they get a series of bull bars closing on their highs, the Emini will reverse to Always In Long, and traders will consequently look for a test of yesterday’s high.
Pre-Open Market Analysis
While yesterday gapped up, as was likely, the bulls failed to create a big bull trend day. Therefore, the bears still have a 50% chance of getting a 2nd leg down. If they do, it could be very big and fast because so many traders saw the FOMC report as very bullish. Hence, this is a possible bull trap.
If today gaps down, that would create a 1 day island top and a lower high major trend reversal. Because Wednesday was so strongly up, the odds favor at least a little more buying before there is a reversal down.
Today is a Friday so weekly support and resistance can be important. Yet, the only significant target is the top of the sell climax from 2 weeks ago. Because it is only about 4 points below the all-time high, which is more important, that is the most significant upside target today. Last week’s high at 2156.00 is the downside magnet.
Importance of gap on monthly chart
Regardless of whether or not there is a new high, the Emini has a 70% chance of falling below the July 2015 high before going much above 2200. That gap came 7 years into a bull trend, and it will keep many traders from buying until it closes.
Several forces are important. Yesterday was a trading range day, which therefore increases the chances of more trading range trading. The Emini is at a price where it went sideways for about a month. The open of the month is a magnet for the final week because an 8th consecutive bull bar on the monthly chart is very unusual. These forces reduce the chances of a big trend day today.
Emini Globex session
The Emini has been sideways overnight. The bulls are trying to keep yesterday’s gap open. The bears want the 2 day reversal to fail and form a lower high, The odds still favor a test of the all-time high. Yet, because the monthly chart is exhausted, a new high will probably fail within a month or two.
Forex: Best trading strategies
The EURUSD daily chart reversed up strongly after Wednesday’s FOMC report. Yet, the rally reversed down yesterday. While the bears might reverse the market down to below the neck line of the Head and Shoulders top, the rally was strong enough to make it likely that bulls will buy this selloff. The odds favor at least a brief 2nd leg up.
Because the EURUSD is at the apex of an 18 month triangle, moves up and down do not go far. Traders assume that the trading range will last forever, and are quick to take profits. Yet, they know that there will eventually be a breakout. Until there is, they will keep buying low, selling high, and taking quick profits.
Overnight EURUSD Forex session
The EURUSD 60 minute Forex chart reversed up from a 3 week double bottom. The initial leg up was strong. Therefore the 2 day reversal is more likely a pullback than a lower high in a bear trend. The odds are that there will be at least one more leg sideways to up today or early next week. The EURUSD 5 minute chart traded in a 30 pip range overnight, which means that traders are scalping as they wait for a breakout. At the moment, a bull breakout and 2nd leg up is more likely.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
While the Emini closed yesterday’s gap up, Wednesday’s reversal up was strong enough to make a test of the all-time high likely next week. When today traded below yesterday’s low, it triggered a lower high major trend reversal on the daily chart. The bears want a gap down on Monday, which would therefore create a 2 day island top.
Since the daily chart has a 9 bar bull micro channel, this 1st reversal down is probably minor. Therefore, bulls will probably buy it.
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.