President Trump stock market rally became buy climax
After yesterday’s buy climax, today gapped below yesterday’s close. There is a 50% chance that the bulls will try to rally for an hour or two. Yet, there is a 75% chance of at least 2 hours of sideways to down trading that begins by the end of the 2nd hour.
The Emini is close to yesterday’s low and the 60 minute moving average. Furthermore, the 10 day micro channel is extreme. Therefore, today will probably trade below yesterday’s low. Yet, bulls have been so eager to buy above the prior day’s low that they will probably be happy to finally buy below a low. Hence, the breakout below yesterday’s low will probably not result in a strong bear trend. Most likely, today will be a trading range day because the 60 minute bull channel will probably begin to evolve into a trading range.
While today could be a bear day, the odds therefore are that the pullback will be limited to 1 – 3 days.
The 60 minute bull channel is beginning to transition into a trading range. Bears therefore are becoming more willing to sell rallies.
Pre-Open Market Analysis
Yesterday was the 9th day without a pullback on the daily chart. Hence, it is a 9 day bull micro channel. This is unsustainable and therefore climactic. Most climaxes lead to trading ranges and not opposite trends. Therefore the Emini will probably start going sideways to down within a day or two.
Bull micro channel is a buy climax
Because a micro channel is a sign of strength, bulls typically buy below the low of the prior bar. Therefore, bulls today will buy at yesterday’s low. Yet, it is a climax. Hence, if the bulls buy today, the odds are that a rally will not last more than a few days. Then, bulls will take profits and bears will short. They both will expect at least a week or so of sideways to down trading.
While it is possible for the bull micro channel to extend many more bars, that is unlikely. It is especially relevant that the big bull bars have bad follow-through on the next day. This is much more common when a rally is about to transition into a trading range than continue much higher.
Overnight Emini Globex trading
It does not matter that there have been many intraday pullbacks over the past 10 days. The buy climax continues to have higher lows every day. Yet, since the climax has extended for 10 days, the odds are that it will evolve into a 2 week trading range within days. It dipped back below 2200 overnight. However, bulls typically buy the 1st pullback in a micro channel. But, they then switch to scalping. As a result, they take profits at a new high after the pullback. This can create a micro double top. Hence, that usually is how the 2 week trading range begins.
Because the top is minor, there will probably be trend resumption up after the pullback. There is no sign of a major top yet.
EURUSD Forex Market Trading Strategies
The EURUSD has had a series of sell climaxes down to the December 2015 low. Hence, bears have stops that are far away. As a result, they will begin to take profits to reduce their risk. While the EURUSD might fall below the December 2015 low of 1.0539 before the bears take profits, the odds are against it falling much below. It is more likely that the EURUSD Forex market will rally about 200 pips over the next few weeks.
Targets for the bear rally are the lower highs on the 60 and 240 minute charts. While the rally might reach the October 25 breakout point, it will probably have to have a test back down 1st.
Because the selloff has been strong, the reversal up will probably be minor. That means that the best the bulls will probably get over the next few weeks is a bull leg in a bear flag or in a trading range. That means that the bulls will not hold for a reversal. In addition, it means that bears will sell the rally. Both expect that it will be followed by a test back down.
Overnight EURUSD Forex trading
The EURUSD fell below yesterday’s low. Yesterday was the 2nd day in a break above the bear micro channel. Hence, the odds are that this bear breakout will last only a few days. In addition, it will probably be followed by a ten bar, two legged bounce. Yet, the rally will probably be a bear flag. The bulls usually need at least a small double bottom before they can create a sustained reversal. The bears hope the bear flag will lead to a break below the 18 month bear flag on the monthly chart.
While the selloff over the past hour has been strong, the bulls will probably begin to buy below this week’s low. The odds still favor a dip below the 1.0539 low before there is a rally into a bear flag. That is still about 20 pips below the overnight low. Therefore, the EURUSD will probably fall further, maybe for 1 – 3 days, but probably not much further. In addition, it will then probably bounce for about 200 pips over the next few weeks.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Because today was an inside day on the daily chart, it creates a breakout mode setup Friday. Because Friday is a short day and the Emini has been sideways for 3 days, Friday has an increased chance of being inside today. That would therefore create an ii Breakout setup.
Yet, after a 10 day tight channel and resistance just above, bears might sell above today’s high. Since bulls usually buy the 1st pullback in a bull micro channel, there will probably be buyers below. In addition, Friday is a short day. These factors make a trading range day likely on Friday.
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.