Emini profit-taking after parabolic wedge buy climax and before Trump testimony
Updated 6:48 a.m.
Today gapped above yesterday’s triangle, but not above yesterday’s high. The bulls want to close the gap below Monday’s low. Yet, unless the rally reaches a new all-time high, the bears will sell it. They want to create a lower high major trend reversal and head and shoulders top on the 60 minute chart.
Since yesterday was a triangle, traders want strong follow-through buying on the open today. This is because 50% of triangle breakouts fail. The Emini is trying to reverse down from above yesterday’s high and the 60 minute moving average. However, the consecutive bull bars on the open make a reversal down less likely. The bears will probably need a micro double top or two big bear bars.
At the moment, the Emini is deciding whether to rally for a measured move up based on yesterday’s range, or reverse down and test yesterday’s close and low. Traders need to see consecutive big trend bars before they decide on the direction. The location is good for the bears, but they need a strong reversal down. The is not clear breakout up or down yet. This is therefore still a trading range open. Since yesterday was a trading range day and a 2 day Big Down after a Big Up, the odds favor continued trading range trading today.
Pre-Open market analysis
The Emini gapped down yesterday, but then traded sideways. The 2 day pullback was probably profit-taking after a very strong month. Today is the last day of the month and there might be more profit-taking.
However, yesterday was not a strong bear trend day, despite the big gap down. The bulls want a rally today to make the month close on its high. If today gaps above yesterday’s high, yesterday will be a 1 day island bottom.
The 2 day selloff is only about 2%. Many bulls will buy it since the bull trend is so strong on the daily, weekly, and monthly charts. Yet, the buy climaxes have never been this extreme. Consequently, the odds favor a 3 – 5% correction over the next 2 months. Therefore, even if today reverses up, the odds are that traders will sell the test of last week’s all-time high.
If the selloff continues for a week or two and reaches 5%, the odds are that the bulls will buy it. This would then probably lead to a new high.
Overnight Emini Globex trading
The Emini is up 10 points in the Globex market. It might therefore gap above yesterday’s high. If so, yesterday would be a 1 day island bottom. While slightly bullish, the gap up will be small. This makes it likely to close shortly after forming. Furthermore, the odds are that the Emini is in the process of pulling back to 2725 (a 5% correction). This means that there will be sellers above yesterday’s high and above the all-time high.
The bulls need a strong breakout above the all-time high to convince traders that the bull trend on the daily chart is intact. Since the 2 day selloff was deep, the odds are that there will be sellers above and at least a small 2nd leg down. Consequently, the bulls will sell rallies to take profits and the bears will sell rallies, expecting at least a small 2nd leg down. Even if there is a strong bull trend today or tomorrow, the bulls and bears will likely see it as an opportunity the sell. The odds favor sideways to down for at least a week or two, even if there is a new high first.
Yesterday’s setups
Here are several reasonable stop entry setups from yesterday. I sometimes also show limit order entries and entries on the close of bars.
EURUSD weak bull flag
The EURUSD daily Forex chart is breaking above a small bull flag in a strong bull trend. Since the flag has several bars with tails on top, the 2 day rally is less likely to lead to a new leg up. In addition, the rally is a parabolic wedge buy climax at the 1.2500 Big Round Number.
The EURUSD daily Forex chart has a buy climax at resistance. Because the bull channel is tight, if there is a reversal, it will probably be minor. That means it will lead to a trading range and not a bear trend. The bottom of the range would probably be at support, like the January 18 low. Since the rally is in a parabolic wedge buy climax, a reversal down would likely have at least 2 legs sideways to down and last at least 10 days.
While the bull trend is trying to resume up, three of the past 4 days had prominent tails on top. The 4th day was a bear day. This increases the odds that the chart will begin to evolve into a trading range. The bulls need a strong break above last week’s high to make traders believe the trend is intact. More likely, there will be sellers above the bull flag and above last week’s high. The result would probably be the start of a trading range lasting at least 2 – 4 weeks.
Overnight EURUSD Forex trading
The EURUSD 5 minute chart rallied 90 pips since yesterday’s low. Since the rally lacks consecutive big bull bars and has many sideways bars with big tails, the rally is more likely a bull leg in a 5 day trading range than a resumption of the 3 month bull trend. Therefore, the bears will look to sell a reversal down today or tomorrow. In addition, the bulls will more likely take profits here and around last week’s high than buy strongly and attempt to create a strong breakout on the daily chart.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini was in a trend from the open bear trend. It traded below yesterday’s low and became outside down after the FOMC report. It then reversed back up sharply.
Today was an outside down day, and it reversed up sharply from below yesterday’s low. However, it did not get above yesterday’s high, and therefore was just a big trading range day. The bulls are hoping that the failed break below the 2 day trading range will lead to a new all-time high. The bears want a rally to a lower high major trend reversal on the 60 minute chart, and then a 5% correction.
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.
