Price action favors stock market October selloff
While the Emini opened just below yesterday’s low, which is support, the 1st 2 bars had bear bodies, which is not much buying at support. Yet, both had big tails below, which means the bears were not especially strong either. As a result of this lack of enthusiasm, there is an increased chance of a lot of trading range price action all day. Especially relevant is that this is happening within a 20 day trading range, which also increases the chances of trading range price action on the 5 minute chart.
The ranges over the past few weeks have been big enough for swing trades, despite most days being trading range days. The Emini is trying for a swing down on the open. Yet, because the selloff is not especially strong, it will probably not lead to a strong bear trend day. The bulls want a reversal up from yesterday’s low and an early low of the day. After 4 bear bars, the bulls will probably need at least a micro double bottom before they can get a swing up. If they succeed, there will probably be sellers around the moving average, and the best the bulls probably will get is a trading range in the 1st 2 hours.
The Emini is Always In Short, and the 4 consecutive bear bars reduce the chances of a bull trend day. However, because the bear bars are not big, the odds are that today will either be a weak bear trend day or a trading range day.
Pre-Open Market Analysis
Since September had a bear body on the monthly chart, and it followed 7 consecutive bull bodies, the odds are high that there will be a 100 point pullback in October or November. This is because that is what happened every prior time there were 7 consecutive bull bars on the monthly chart. As a result, traders will look to sell rallies over the next few weeks, even if there is a new high.
Friday’s selloff and close below the September open triggered and Expanding Triangle Lower High on the 60 minute chart. Because the Tight Trading Range Double Top of August 15 and 23 on the daily chart has not been exceeded, Friday’s selloff could be the start of the strong 2nd leg down that often follows this type of top. I gave an example of a chart in the weekend blog.
Less likely, the Emini will continue up to the 2350 measured move target area without the 100 point pullback. With the Emini so close to the all-time high, it still therefore might get there. Yet, the bears have a credible wedge lower high major trend reversal. While they do not yet have a strong sell signal bar or a strong bear breakout, either could come with just a single day. If it does, the probabilities would then shift in favor of a correction.
Overnight Emini Globex
The Emini is down 5 points in the Globex market. The bulls need a rally above Friday’s high to negate the reversal down on the 60 minute chart.
Forex: Best trading strategies
The EURUSD daily Forex chart is at the apex of nested triangles. The bears had a failed breakout attempt on Friday. Yet, the bulls were only able to create a bull outside up bar. They failed to get a breakout above a lower high. Until there is a breakout, traders will continue to take profits after any move goes for 1 – 3 days.
As a result of how tight the triangle is, the odds are that the breakout will come within the next day or two. The minimum target up or down is about 200 pips, which is the height of the month-long trading range.
Because the most recent breakout before the triangle was a rally, the odds normally would slightly favor a bull breakout (maybe 52 – 53%. Yet, the bull breakout failed to get above the top of the June 24 bear breakout. Therefore the bear breakout is still influencing the market. The odds are 50% for the bull and bear breakout. Until there is a breakout, the 5 minute chart will probably have mostly trading range price action.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini gapped down and entered a trading range today. While it reverse up from a head and shoulders bottom at the end of the day, the rally was not particularly strong. The bulls want follow-through buying tomorrow. Yet, with the weak rally and the 8 day triangle, they will probably be disappointed. Hence, the odds are against a strong bull trend day, despite today’s reversal.
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.