Trump tax cut creating Emini wedge top breakout
The bulls got 2 bars of follow-through buying on the open, but the rally is a parabolic wedge. In addition, yesterday’s late trading range was late in a buy climax and therefore a possible final bull flag. While the bulls are getting follow-through buying, the bear bars increase the odds of an early trading range. A strong bear trend day is unlikely. The Emini is searching for the top of the range. The bottom of the range might be around the moving average or the low of the day.
Pre-Open market analysis
Yesterday was a very strong bull trend day that broke above the wedge top on the daily chart. The rally was strong enough so that bulls will buy the 1st pullback on the daily chart.
Since yesterday was climactic, there is a 50% chance of follow-through buying in the 1st 2 hours. There is also a 75% chance of at least 2 hours of sideways to down trading beginning by the end of the 2nd hour.
Overnight Emini Globex trading
The Emini is up 2 points in the Globex market. Today might therefore gap up. The bulls want consecutive strong bull days. They have a 25% chance of success. At a minimum, they want a close above the open. This would create a bull body on the daily chart and represent follow-through buying. Therefore, if the Emini is below the open in the final hour, traders should look for a late rally back to the open.
The bears want a bear body at a minimum. They would see that as a sign that yesterday’s breakout failed. Furthermore, they want a big bear trend day that totally reverses yesterday’s rally. The odds of that are about 20%.
Most likely, today will be a trading range day. There is a 50% chance of follow-through buying in the 1st 2 hours. However, the Emini would then likely either enter a tight range or reverse back to the open.
If there is a gap up, it will probably be small. In addition, it will probably close withing the 1st hour and be meaningless. The most important information that traders will get today is whether there will be at least minimum follow-through buying. If so, the odds would favor at least a small 2nd leg up.
Yesterday’s rally was so exceptionally strong that the odds favor higher prices over the next week or two. Yet, when a rally is unusually strong, there is an increased chance that it is an exhaustive buy climax that can lead to a trend reversal.
EURUSD Forex market trading strategies
The bears want the rally to be a lower high major trend reversal. However, the bull channel was tight. Therefore, this selloff will more likely be a 2 legged pullback down to support, and therefore a minor reversal. The odds are that it will lead to a test back up to last week’s high within a couple of weeks. The trading range will probably continue for at least a few more weeks. Support is a 50% pullback, the 20 day EMA, and the November 21 low.
The bulls want a double bottom with the November 21 low and then a 2nd leg up to above the 4 month trading range. Trading ranges have inertia and resist breaking out. There is no evidence that a breakout is about to succeed. More likely, the range will continue indefinitely.
Overnight EURUSD Forex trading
The 3 day selloff continued overnight on the 5 minute chart. It has now retraced about 50% of last week’s rally and it is testing the highs of October. This is a support area. Since 2 legs down are likely, there should be a 50 – 100 pip bounce within a couple of days. Then, the odds favor a 2nd leg down.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini was not a big bull trend day and therefore it was not a strong follow-through day. Yesterday was so strong that the Emini might need several sideways days before the bulls will be willing to buy again.
The bears see today as bad follow-through. For them, today is a sell signal bar on the daily chart for a failed breakout. Because today was not a strong bear bar, there is only a 30% chance of a reversal down over the next few days. More likely, there will be buyers below today’s low. Hence, the best the bears will probably get is a pause in the rally for a few days.
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.