The Emini reversed up strongly on the 2nd bar after testing the October 5 gap. The follow-through has been weak, but when there is an extreme sell climax on the 60 minute chart and a strong reversal up at support on the daily chart, the day is not likely to be a bear trend day. This means that today will either be a bull trend day or a trading range day. The Emini is currently Always In Long, but only 2 of the 1st 4 bars are big bull bars. This increases the chances of an early trading range. The bull bars were strong enough so that the reversal down will probably be bought.
Pre-Open Market Analysis
S&P 500 Emini:
The Emini is down 46 points in the Globex session. Yesterday triggered the sell signal on the daily chart that I discusses. It was a bear breakout below a small breakout of a small breakout, which is a type of failed wedge bull flag. Yesterday’s breakout was big enough to make lower prices likely. Today will probably open with a big gap down. These 2 days were caused by the trading range bulls finally giving up, and by strong bears selling to trap the bulls even more.
Both want a rally. The bulls want a rally to allow them to exit with a smaller loss. The bears will start to take profits after such an unexpected gift. They want a rally that will allow them to sell again higher. With both the bulls and bears looking to sell a rally, maybe to the bottom of the 3 month trading range around 1980, there is a 60% chance that there will then be at least a 2nd leg down. There is also a 60% chance of a test of the August low, a 30% chance of a test of the monthly bull trend line around 1700, and a 20% chance of a test of the double top on the monthly chart around 1600.
Because the 2 days of selling ha been so extreme, it will probably attract profit taking bears and bull scalpers. The result will probably be a trading range or a pullback that begins today or tomorrow. However, the odds are that the first reversal up will be sold.
The Globex session has been in a narrow range for about 6 hours. It is in breakout mode. The bulls want a reversal up and the bears want one more leg down. After such an extreme sell climax, if there is a bear breakout, the trading range will probably be the final bear flag before a reversal up for a day or two. Bulls and bears will probably be looking to buy a reversal up today. Although the bears will be willing to sell a strong trend down on the open, they will be quick to exit because the Emini is in a sell climax. The result can be a sharp reversal up at any time in the next day or two.
If there is a reversal up today, especially if it contains consecutive big bull trend bars closing near their highs, bulls will swing trade for a possible bull trend day. If there is an early trading range, bears will look to swing trade below a bear sell signal bar near the top, but they will be quick to take profits on a reversal. If there is a trading range with a buy signal bar near the bottom, bulls will buy for a swing trade. If there is a trading range with no good signal bars and no good breakouts, day traders will scalp.
Forex: Best trading strategies
The EURUSD has been unfolding every day for the past month exactly as I have been saying every day that it was likely to do. This has given traders many good day trading opportunities. The daily chart had a failed breakout below a small head and shoulders top bear flag (it was a good size top on the 60 and 240 minute charts). As long as the selloff held above the December 3 bull trend reversal, there was a 60% chance of a 2nd leg up. It probably began on Monday.
The 3 day rally on the 60 minute chart has had several brief buy climaxes followed by pullbacks lasting several bars. This is more common in a trading range than in a bull trend, which means that this 1st attempt up might test back down to around Monday’s low before a leg 1 = leg 2 measured move attempt begins (leg 1 began with the December 3 bull trend reversal).
The overnight bull breakout on the 60 minute chart was big. Bulls want a measured move up from a bull breakout. The bears want the breakout to be an exhaustion gap and they want a test back down to Monday’s low. While there might be higher prices for a day or so, the rally from Monday’s low looks more like a bull leg in what will become a trading range than a new bull trend. This means that a pullback is likely today or tomorrow. An obvious target is the overnight higher low. The bulls hope that the pullback stays above the 1.0830 lower high and creates a measuring gap for a rally to the January 4 lower high around 1.0950. Because the rally was weak, there is a 50% chance that either target will be reached. Although the 5 and 15 minute charts are Always In Long, the weak rally means that bulls will be quick to take profits on any reversal. The result could be a deep pullback and the creating of a trading range on the 60 minute charts. Bulls will probably begins to switch to scalping today. Because a trading range is likely soon, the bears will be scalping as well.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini closed the October 5 gap on the daily chart and stayed around it for the rest of the day. Although the 60 minute chart is oversold and the 5 minute chart triggered and expanding triangle buy signal at the end of the day, the bears will look to sell the 1st 2 day rally for a test back down. They hope that the breakout below the 3 month trading range will result in a test of the August low. There is a 60% chance that they are right, but because of the sell climax on the daily chart, the Emini might bounce back above the bottom of the 3 month trading range first.
The bears are in control, but many took profits in the final hour and will wait to sell again higher. This can create a buy vacuum test up over the next few days. Less likely, the selloff will continue straight down to the August low.
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.