Trump speech rally above Dow 21,000, but buy climax
Yesterday’s sell climax continued on the 1st bar, but reversed up on the 2nd bar. The bulls will probably need at least a double bottom over the 1st hour if this is an early low of the day. The bears do not like the huge sell climax followed by a reversal up. When there is a confusing open that disappoints bulls and bears, the odds favor a trading range for an hour or two. That is what is likely here. The market is deciding whether the 2nd bar will be the low, or if the low will be a little lower. The top of the range will probably initially be around the moving average.
While today could be a strong trend day up or down, the selloff is big enough to make a bull trend day unlikely. In addition, it is climactic, and yesterday was a huge bull day. Therefore today will probably not be a strong bear trend day. Hence, a trading range day is most likely, as is a trading range for the 1st hour or two.
Pre-Open Market Analysis
The Emini had a strong bull trend day yesterday. As a result, there is a 50% chance of follow-through buying in the 1st 2 hours today. Furthermore, there is a 75% chance of at least a couple hours of sideways to down trading that begins by the end of the 2nd hour.
The Emini is in a zone of measured move targets on the weekly chart and at the 2400 Big Round Number. Most buy climaxes are followed by trading ranges, and the odds favor trend resumption up after the trading range.
Because this buy climax is late in a bull trend and at resistance, there is a 50% chance of a bear breakout, and maybe a 30% chance of a reversal down by the end of the March 15 FOMC meeting. There is still a 60% chance of a reversal down to the 2016 close within a couple of months, but the rally might reach all of the measured move targets first.
Overnight Emini Globex trading
The Emini is unchanged in the Globex session. In addition, it traded in a narrow range overnight after yesterday’s buy climax. Therefore, the odds above are still valid. The selloff at the end of the day increases the chances of a trading range today.
EURUSD Forex Market Trading Strategies
The EURUSD daily Forex chart is still deciding if it has to get to within a few pips of the January 11 higher low before rallying 200 pips to the top of the 5 month trading range.
There is still a 40% chance of a strong breakout below that support before a rally, and then a test down to par. Since it is close to last week’s low, the bulls will try to create a double bottom here.
If they get a strong reversal over the next week, then that would be enough for traders to conclude that the 200 pip rally has begun. They therefore will be more willing to buy as the rally unfolds. Without a strong reversal, many traders will hesitate to buy until the EURUSD falls to that January 11 low. They then would try to create a big double bottom with that low.
Overnight EURUSD Forex trading
Because the EURUSD is close to support and deciding whether to break below or reverse up, traders are hesitant to hold onto positions. They want a sign of whether the bulls or bears are winning. As a result, the moves up and down over the past 3 weeks have been small.
While the EURUSD traded down since yesterday’s high, it has been in a 30 pip range overnight. Hence, Forex day traders are scalping while they wait for a breakout. This might continue until the March 15 FOMC meeting.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Yesterday was a buy climax at the 2400 big round number and in a cluster of measured move targets on the weekly chart. Today reversed down relentlessly. Since there is a 60% chance of a 5% pullback over the next 2 months, traders will watch tomorrow for a gap down. That would therefore create a 2 day island top, which would increase the chances of a correction. The bears need a strong bear day tomorrow. If they are able to close tomorrow below Monday’s open, the week will be a bear reversal bar. Therefore, the odds that the pullback has begun would go up.
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.