President Trump climactic stock market rally
While the Emini gapped up, the 1st 2 bars were dojis, which is weak buying. Furthermore, the Emini opened at the top of the 9 day channel. While there is a measured move target from the election gap at around 2207 and a leg 1 = leg 2 target there as well, this is a weak open. As a result, the gap will probably close. Yet, most opens in the 9 day channel had early selling, but then buyers came in.
Yesterday was a quiet day. These early small dojis at resistance increase the chances that today will also be a quiet day.
This is a limit order open. If there is a 2nd reversal down from above yesterday’s high, especially with a strong sell signal bar, that would be a reasonable short for a swing down.
The bulls need a better buy setup, like a double bottom or wedge bottom around yesterday’s high or the moving average. Yet, because the Emini is at the top of a 9 day channel, the odds are that a bull breakout will fail and reverse within about 5 bars on the 15 minute chart.
A strong trend can come at any time, even in an overbought market. If there is a strong breakout up or down, traders will swing trade. Yet, this early tight trading range after yesterday’s quiet trading make a trading range day likely.
Pre-Open Market Analysis
The Emini has been in a tight bull channel on the daily and 60 minute charts since the Trump election rally. Because the 2 week trend is a Spike and Channel bull trend, the odds favor a trading range soon. Bull channels are bear flags. Hence, 70% have a bear breakout. Yet, the bear breakout can simply come from a sideways move instead of a reversal down.
Buy climaxes can extend for a long time. The next target above is the 2200 big round number. That is also around the top of the bull channel on the 60 minute chart. Therefore, traders will be looking for a reversal down around that area. Since the bull channel is tight, the bull trend is strong. Therefore, the best the bears can probably get over the next couple of weeks is a pullback and a trading range. While a bear trend can come at any time, the odds are against this for at least a couple of weeks.
Pullback from bull channel
When a bull channel ends, there is over a bull breakout above the bull channel first. As a result, there might a brief, strong breakout above 2200 before there is a correction. Since the rally has lasted a couple of weeks, the correction will probably be at least several days.
Because most of the corrections over the past 5 months have been tight trading ranges, this correction will probably be a tight trading range as well. Furthermore, the corrections have lasted a long time. Therefore, instead of simply a 5 day pullback, the Emini might soon go sideways for a month or more.
Can this rally continue for several more weeks in a tight bull channel? While possible, that is unlikely. The odds favor a pullback into a trading range lasting 5 or more days.
Overnight Emini Globex trading
While the Emini rallied for 5 hours to above the 220 big round number, it has been in an endless pullback since. The 8 day parabolic tight bull channel is a buy climax. There is a 60% chance of a bear breakout below the channel and then a trading range beginning within 1 – 2 weeks. It can come any day.
Yet, the bulls could get a bull breakout above the bull channel. However, there is a 75% chance that the bull breakout would fail. Hence, that would probably be the start of 2 weeks of sideways to down trading.
EURUSD Forex Market Trading Strategies
The EURUSD sell climax has no bottom yet. Furthermore, there is still room to the December 2015 low. Yet, because of the extreme selling, the odds are that the bears will take at least partial profits soon. When the protective stop is far, as it is now, bears will want to reduce risk. The easiest way is to take some profits.
As a result of the extreme selling, the correction might rally for more bars and more pips that what seems likely. Hence, the bulls might get a 2 week rally that tests a major lower high or the October 25 breakout point. Therefore, it could last 200 points.
For the bulls to get a trend reversal instead of a bear rally, they will probably need a major trend reversal on the 60 minute chart. That would probably take at least 2 weeks to develop.
Possible breakout below 18 month trading range
While the selloff has strong momentum, it is still above prior lows. It is still above the bottom of the 18 month trading range. Until the bears get a strong breakout below the range, the odds are that this selloff will probably be simply another leg within the range.
Obviously, the range will eventually break out. Yet, the odds favor at least a 2 week rally before the bears will be able to succeed. Furthermore, the odds are that they will fail, and the trading range will continue longer than what bears want.
Overnight Forex Trading
The 2 day rally has had 3 pushes up. It is therefore a wedge bear flag. Yet, because it is in a parabolic wedge sell climax at support, there is a 40% chance of a bull breakout above the bear flag. Furthermore, there is a 60% chance of either that bull breakout or a reversal up after a bear breakout. The 2 day rally would therefore become the Final Bear Flag.
The bears want a strong breakout below the December 2015 low. Yet, this climactic selloff will attract profit takers. The risk to the protective stop is too great for many institutions. While it is possible for the bears to get their big breakout without a bounce, a 2 week rally is more likely. Hence, if the EURUSD falls below that December 2015 low, the breakout will probably be brief and lead to a 2 week rally.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
While the Emini is overbought, it has no top yet. Today was the 10th day in the bull micro channel on the daily chart. It is also near the top of the 60 minute channel, and a Measured Move target on the daily chart.
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.