September stock market crash
The Emini gapped below yesterday’s low, yet reversed up sharply. The odds are that the 2 hours of sideways to up trading has begun. While there is always a 50% chance of follow-through selling in the 1st 2 hours after a sell climax day, this reversal up was strong enough to create a Big Down, Big Up candlestick pattern. As a result, the best the bears will probably get over the next hour or so is a trading range. The Emini is Always In Long. Traders now will decide if the rally is the start of a bull trend day, or, more likely, a leg in a trading trading range
Pre-Open Market Analysis
The Emini had a big bear trend bar on Friday on the daily chart. It closed below the lows of about 40 bars. Furthermore, it closed on its low. These are signs of a strong bear breakout.
Yet, the bears need follow-through selling today. They would therefore like a big bear trend bar closing on its low. That would increase the chances of some kind of measured move down. In addition, it would increase the chances that the reversal will last more than a week or two. There is already about a 70% chance that the Emini will fall below the top of the 2 year trading range.
Friday was a sell climax day, and therefore there is a 50% chance of follow-through selling in the 1st 2 hours. Yet, there is only a 25% chance of a strong bear trend day. Furthermore, there is also a 75% chance of at least a couple of hours of sideways to up trading that begins by the end of the 2nd hour.
Emini Globex session
The Emini traded down and reversed up. Since Friday’s selloff will probably be a bull flag on the weekly chart, the odds are that there will not be strong follow-through selling today. Furthermore, the selling was strong enough so that there will probably not be a strong reversal up this week. As a result, the Emini will probably be confusing this week. Yet, the odds favor at least a little more down on the daily chart.
Forex: Best trading strategies
While the EURUSD has nested head and shoulders tops, a head and shoulders top is a trading range. Bulls see it as a triangle or some other type of bull flag. Only 40% of major bear reversals lead to bear trends. Because tops are usually trading ranges, it is more likely that the market continues sideways. It would therefore disappoint both the bulls and the bears. However, Friday’s selloff triggered the short. The bears need follow-through today. Yet, the odds still are against the conversion of the trading range into a bear trend on the 240 minute chart.
Stock market selloff
Friday’s big selloff in the US stock market did not have a significant effect on the EURUSD on Friday. If the stock market continues to selloff, it will affect all financial markets. Yet, it is impossible to know if the result will be a bull or bear trend. Traders should therefore simply trade what is in front of them.
Because the stock market selloff is probably just a bear leg in a bull flag on the weekly chart, Forex traders do not yet see it as significant.
EURUSD overnight Forex session
The EURUSD overnight traded mostly sideways and within Friday’s range. This is what most commonly happens as a reversal begins to form. Most reversals end up as continuation patterns, not opposite trends.
While there was a 50 pip selloff overnight, the EURUSD has been in a 20 pip range since. The selloff will probably end up as a sell vacuum test of the bottom of the 4 day range. Until there is a strong breakout of the range, Forex day traders will scalp, as they do on most days.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini reversed most of Friday’s selling today. While it has had many similar reversals after strong bear breakouts over the past 2 years, most have evolved into trading ranges. With the FOMC meeting next week, the odds are that the bulls will be disappointed by a lack of follow-through buying tomorrow. I have said that bulls would buy the selloff. Yet, the selloff was very big, just like the reversal up. Big Down, Big Up creates Big Confusion. Confusion is a hallmark of a trading range. Hence, the odds are that the Emini will be sideways for the rest of the week.
While the bulls want strong follow-though buying tomorrow, today was a buy climax. That means that the bulls have only a 25% chance of a strong bull trend tomorrow. However, they have a 50% chance of some follow-through buying in the 1st 2 hours. Finally, there is a 50% chance of at least a couple of hours of sideways to down trading beginning by the end of the 2nd hour.
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.