Christmas year end rally pullback
Updated 6:51 a.m.
The bulls tried to rally from above yesterday’s low and the 60 minute moving average, but failed at the 5 minute moving average. The day began with limit order bull and bear scalpers making money. This looks like a continuation of the trading range trading of the past 2 weeks, and it makes today likely to again have mostly trading range price action.
Because the 2 week rally was strong, the odds are against a big reversal down. Furthermore, since the 2 week rally was unsustainable, the odds are against a strong bull trend.
Trading range days usually have swings up and down. Yet, most of the trading is limit order scalps. Traders should look for the 1 – 3 stop entry swing setups, or wait for strong breakouts.
At the moment, the Emini is Always In Short and breaking below yesterday’s low. Yet, the bears need strong follow-through if this is going to be a big bear trend day. More likely, this will be a bear leg in a trading range day.
Pre-Open Market Analysis
Yesterday traded below the low of Friday and therefore was the 1st pullback in a 12 day bull micro channel. While any reversal down can be the start of a bear trend, 12 days without a pullback means the bulls are strong. For 12 days, they were so eager to buy that they bought above the prior day’s low. As a result, many will be happy to finally be able to buy below the low of a prior day.
Micro channel is a buy climax
When a micro channel lasts 10 or more bars, it becomes unsustainable. It is therefore a buy climax. As a result, it usually soon leads to a trading range. Yet, is it also a sign of strong bull. Therefore, bulls typically buy the 1st pullback. The pullback began yesterday. A pullback from a micro channel usually lasts 1 – 3 days. Therefore, the pullback might continue a little longer.
Because a micro channel is a sign of eager bulls, the bull trend usually resumes and reaches a new high. Yet, the climactic nature of the protracted rally is a sign of exhaustion. As a result, when the bull trend resumes, it usually exhausts itself within about 5 bars. Therefore, while this pullback will probably result in a new high, that new high will probably be brief. The market then usually pulls back again and enters a trading range for 5 – 10 bars.
Overnight Emini Globex trading
The Emini was sideways overnight. Traders are deciding how long this pullback will last. There will probably be a rally to a new high this week. Yet, because of the protracted bull micro channel, that rally will probably be followed by a couple of weeks of sideways to down trading.
Because this is a small pullback on the daily chart, the 5 minute chart will probably be mostly sideways again today. Yet, trading ranges usually have at least one swing up and one swing down. However, most of the trading will probably be scalping with limit orders. As always, traders will be ready for a surprisingly strong trend up or down, but that is unlikely.
EURUSD Forex Market Trading Strategies
While the 240 minute EURUSD Forex chart is trying to form a Double Bottom Higher Low Major Trend Reversal with yesterday’s low, the bulls might not have generated enough big bull bodies to erase yesterday’s bear bodies. Furthermore, they might want a test back down to the December 2015 low before being willing to buy.
The 240 minute EURUSD Forex chart sold off yesterday from a wedge lower high. Yet the rally was strong enough to put 3 bars completely above the moving average. Therefore the bulls were strong. When gap bars form late in a bear trend, they usually lead to the final bear leg before a major trend reversal triggers. As a result, bulls will probably buy this selloff, even if it falls below last week’s low. Because the selloff came from a wedge bear flag, it will probably need at least a 2nd leg down before the bulls will buy.
Only 40% of major trend reversals lead to a swing up. Even when they do, they then usually lead to a big trading range. The bottoms that do not lead to a swing up usually continue sideways. Less likely, the sell off from the wedge bear flag will break strongly below last week’s low before there is a 2 week trading range.
Probably 2 week trading range
I mentioned last week the the EURUSD would probably rally to lower highs in its bear channel on the 240 minute chart, and the rally would probably extend at least 200 pips. It rallied 160 pips and sold off.
Because of the gap bars and the double bottom with the December 2015 low, nothing has changed. The odds still are that the EURUSD will rally at least 240 pips, and it will probably be in a trading range for a couple of weeks. Since the selloff from the wedge bear flag was strong, bulls will probably wait to buy a 2nd leg down. Their buy would be a major trend reversal, and the rally will probably reach at least 200 pips above this bear low.
Overnight EURUSD Forex trading
The daily chart has been in a tight trading range for 8 days at support. The 240 minute EURUSD chart is trying to form a major trend reversal after a sell climax down to the December 2015 low. Yet, the buying since yesterday’s test down has not been strong compared to yesterday’s selling. Furthermore, many bulls would like the test down to again reach the December 2015 low. While the reversal might take place from this 2 day double bottom, the odds still favor a little more down. Therefore, if there is a reversal today, unless it is very strong, it will probably be minor and unsuccessful.
Whether or not the bulls get a better 2nd test of the December 2015 low, the odds still favor 2 weeks of sideways to up trading. This is because the strong November selloff stopped at the bottom of the 18 month trading range. When that happens, the market usually bounces. After about a 2 week rally, the bears will probably try again.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini reversed up from a wedge bottom below yesterday’s low, but failed to get about yesterday’s high. Instead, it sold off from a nested wedge top that was a double top with yesterday’s high.
The Emini has pulled back for 2 days after a bull micro channel. While the pullback might last another 1 – 2 days, the odds are that it will trade up to a new high over the next week, and then evolve into a trading range.
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.
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When I mention time, it is USA Pacific Standard Time (the Emini day session opens at 6:30 am PST, and closes at 1:15 pm PST). You can read background information on the intraday market reports on the Intraday Market Update page.
Al,
Thank you for the update.