Island top still valid after FOMC announcement
While the Emini reversed up from below yesterday’s low with 2 bull bars, the bars were not particularly big. Furthermore, they failed to get above the moving average. While this is enough to make the Emini Always In Long, it is probably a minor reversal. The bears will try to turn the Emini down from around the moving average. Yet, the 3 bull bars make it likely that the bears will need a double top. A weak bottom and no top makes a trading range likely for the 1st hour or two. Furthermore, it reduces the chances of a strong trend day. Finally, it increases the chances that today will be mostly a trading range day.
Pre-Open Market Analysis
While the Emini gapped up yesterday, it sold off and closed the gap. Furthermore, it did not move strongly up after yesterday’s FOMC report. Hence, the island top is still in place.
While the top might lead to the 100 point pullback that is likely within 2 months, most tops fail. Therefore, the odds still favor sideways. Hence, the bears need one or more big bear bars to convince traders that the pullback has begun.
Overnight Emini Globex trading
The Emini is down 5 points in the Globex market. Because yesterday failed to rally above last week’s high or close the gap below Friday’s low, the bears still have a 40% chance that the 5% correction has begun. Hence, the island top is still in effect.
As long as the pullback stays above the January 23 major higher low, the odds still favor a continued rally. A break below there could begin a cascade of stop running. It might therefore lead to a big bear bar on the daily chart that closes below the 2 month trading range. If so, the odds would favor a 100 point pullback to the August breakout point.
EURUSD Forex Market Trading Strategies
Since the weak wedge bear flag rally on the daily chart is now close to the December 8 lower high, traders now see it as a test. If the EURUSD daily chart turns down from here, it would be more from a double top with the December 8 high that simply a wedge bear flag. Furthermore, if it closes strongly above that high, traders would then expect the rally to test the November 8 major lower high. Hence, a 500 pip rally from here.
What is most likely? At the moment, the odds still favor a reversal down from around the December 8 lower high. Yet, if the Emini’s 5% correction is underway, that would be a reflection of a worldwide financial event. Hence, all financial markets would likely have significant moves.
Since the odds still favor more rally in the stock market, a 5% selloff would be a sign that the short term trend has changed. Because the trend is still down on the daily EURUSD chart, a corresponding change might be a strong leg up.
EURUSD buying pressure
Furthermore, the weekly EURUSD chart has done 6 weeks without a bear body. This is therefore a sign of buying pressure. Hence, the chart would probably have to do sideways for a few bars (weeks) before it could resume down. In addition, it also increases the odds of a surprise break above that December 8 lower high. As a result, the odds of the daily chart breaking to the upside are now almost as high as they are for another lower high and a resumption of the bear trend.
Overnight EURUSD Forex trading
The EURUSD Forex market has been in a 30 pip range for the past 6 hours. It is deciding whether to continue up 60 more pips to the December high. When a market gets close to a major magnet (resistance), if usually cannot escape the gravitation pull. Therefore, it sometimes accelerates up to the resistance level.
That might happen here. Once there, it decides whether it will break to the upside and then rally to the next resistance level, or reverse down from a double top. Since the daily chart is in a broad bear channel, the odds are against a strong bull breakout. Because the weekly chart has 6 bull bars, the odds are against a fast reversal down. That makes sideways trading likely for a week or two around the December 8 major lower high.
In the meantime, day traders are getting mostly limit order scalps in tight ranges and brief breakouts. Those trading the 240 minute chart continue to buy pullbacks and sell new highs because that is the best way to trade a broad bull channel.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini had many abrupt reversals today and therefore was a trading range day. The week ends tomorrow and therefore traders will watch for weekly support and resistance. At the moment, this week is an inside bar in an ioi breakout mode pattern for next week.
The bears still have their 4 day island top. They therefore need a bear breakout to convince traders that the 5% correction has begun. Without a strong bear breakout, the odds still favor at least one more new high.
If the bulls get a gap up tomorrow or next week, they will create an island bottom. It would therefore erase the island top and make a new high likely.
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.