North Korea is catalyst for 5% stock market correction
Today opened within the tight range at yesterday’s close. The gap below is a magnet, and the bear trend line above is as well. Since an early trading range is likely, the Emini will probably test both in the 1st 2 hours. It is now deciding which it will test 1st.
If the Emini sells off from below this tight range, the range will probably be the final bear flag. The breakout will therefore probably reverse up from below yesterday’s low and the gap below.
Alternatively, if it rallies to the trend line, it might continue up to the top of yesterday’s final sell climax. However, that would be back inside yesterday’s 3 hour trading range. The odds are that it would then go sideways.
While the Emini can trend at any time, this open is more consistent with a trading range beginning withing the 1st hour or so. Furthermore, today will probably be a trading range day. The final hour has an increased chance of a trend up or down.
Pre-Open market analysis
Today is Friday and the close on the weekly chart is important. The weekly chart is in an extreme buy climax. Additionally, this week is outside down. Hence, if it closes near its low, that would be a sign that the correction might have begun.
The bulls want the week to close back above last week’s low, or at least have a big tail on the bottom. Since yesterday was a sell climax day, there is a 50% chance of at least 2 hours of sideways to up trading today. Furthermore, there is a 25% chance that today will totally reverse yesterday. If so, the week might close above last week’s low. As a result, the bear case would be much weaker. Finally, there is a 25% chance that today will be a strong bear trend day.
The bears want to validate yesterday’s bear breakout and therefore want today to have a bear close. They would prefer a big bear day. If they get even a small bear bar on the daily chart today, then the correction is probably underway.
The bulls want a strong bull reversal. That has happened many times after bear bars over the past 4 months. That lack of follow-through indicated that the bulls were in control. If they fail to do that today, traders will believe that the bears are now in control.
Overnight Emini Globex trading
The Emini is up 1 point in the Globex session. Since yesterday was a sell climax, traders will expect at least a couple hours of trading range trading today. Because today will probably open around yesterday’s close, the bears might be hesitating. That could lead to an early trading range or reversal up to the top of yesterday’s late sell climax around 2450.
The most important thing traders will watch today is whether today will have a bull or bear body. Consequently, if the Emini is within 5 points or so of today’s open in the final hour, it will probably test the open. It might not decide on whether to close above or below it until the final minutes.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart is in a bull trend. It has pulled back to the moving average and therefore has formed a bull flag. However, this is after a buy climax and it is at resistance.
Because the EURUSD daily Forex chart has been above its moving average for more than 20 bars, the bulls have been eager to buy. They are now getting a chance to buy at an average price, instead of above average. This 8 day pullback is a bull flag. It therefore will probably have a bull breakout.
However, the bull flag followed a buy climax. In addition, the rally ended at resistance. It is at the top of a 2 hear trading range. In addition, it has rallied back to its bear breakout point at the bottom of a 10 year trading range. The odds are that it will pull back more, like for a couple of months. Yet, it might make one more attempt to break above the resistance 1st.
Unless there is a strong breakout above last week’s high, the odds are that there will be sellers above the bull flag and last week’s high. Since the bull trend is in a tight channel, the 1st reversal down will probably be minor. Hence, a trading range for 1 – 2 months is more likely than a bear trend. The daily chart is now deciding if the top of the range came last week, or if it is a little higher.
Overnight EURUSD Forex trading
The 5 minute chart rallied 70 pips over the past hour. It is therefore breaking above the 8 day bull flag. The rally is strong enough to have at least a small 2nd leg up. Bulls are buying for a swing up on the 5 minute chart. Yet, last week’s high is resistance. Consequently, the odds are that there will be sellers again around that high. Furthermore, because the chart is now in the top half of an 8 day trading range, this rally will probably soon enter a trading range.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Yesterday was a big bear breakout on the daily chart, but today was a disappointing follow-through day. The bears wanted a strong bear trend day, but got a trading range day instead. Additionally, it had a bull body on the daily chart. Yet, sometimes the follow-through from a breakout comes 2 – 3 days later. Therefore, the next few days are important. If the Emini starts to get 2 – 3 bull bars on the daily chart, then the bear breakout will likely have failed.
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.