Five percent correction after Trump rally resumption fails
Updated 6:50 a.m.
While the Emini gapped above yesterday’s high, the gap was small and the 1st bar had a big tail on top. This is therefore disappointing for the bulls. Hence, it is a warning that today might not break strongly above Monday’s lower high. Instead, the Emini might test down from that high before continuing up to the top of the 60 minute wedge bear channel.
The Emini reversed down on the 3rd bar, but the bar did not close on its low. This is disappointing for the bears as well. Because the bulls have not yet had strong follow-through buying and the Emini is at the top of a 3 day range, the odds are that the Emini will test sideways to down to the moving average.
The bears need consecutive big bear bars closing on their lows to make traders believe this is an early high of the day. Since they have not created them so far, the open is confused. Consequently, this will probably be a breakout mode open. Although the odds are that the Emini will rally over the next week, this is not yet a strong bull trend day. Therefore, if today is a bull trend day, it will probably be a weak trend day.
There is enough strength from the bulls to make a bear trend day unlikely. The odds are therefore for either a weak bull trend day or a trading range day. A trading range day is more likely, and a trading range is likely for the 1st hour or two.
Pre-Open market analysis
The Emini pulled back from Monday’s rally. Since the 60 minute chart reversed up from a wedge bottom, the odds are that yesterday’s pullback will lead to a second leg up. Yet, the pullback could last another day or two before the bulls buy again. Yesterday was an inside doji day on the daily chart and therefore a one day trading range. Hence, the Emini might go sideways for more days before the bulls buy again.
Reversals usually have at least 2 legs
If the bulls buy this pullback after the wedge bottom, Thursday’s low would be a higher low major trend reversal. Since the wedge bottom is likely to have 2 legs up on the 60 minute chart, knowing that the 2nd leg up is from a major trend reversal adds nothing. This is because a rally from a higher low major trend reversal is always a 2nd leg up from the bottom. Since the minimum goal of any reversal is TBTL Ten Bars, Two Legs, it does not matter if a trader sees the pattern as a wedge or the higher low. Both are likely to have one more leg up.
Furthermore, a rally after a wedge bottom usually tests the top of the wedge. That is the April 10 lower high. Hence, the bulls will probably get a 20 point rally over the next week.
Weekly chart has strong buy climax
Since the sell climaxes on the weekly chart are so strong, the odds are that the daily chart is in a bear channel. Therefore, traders will sell rallies. Because the December close is an important magnet, the bear trend will probably test it within the next 2 months. However, the Emini will likely rally for another week or two before it begins its move down below the March 27 low.
Overnight Emini Globex trading
The Emini is up 8 points in the Globex market. This might be the start of a rally to test the April 10 top of the wedge bear channel on the 60 minute chart. Yet, it is now testing the April 17 lower high. Consequently, it might test back down to yesterday’s low before breaking above that high. If it tests down, bulls will buy the test, expecting a double bottom higher low. Whether or not it tests down, the odds are that it will test the April 10 high over the next two weeks.
Today might gap above yesterday’s high. While that is bullish, the gap would be small. In addition, it would be in the middle of a 2 month trading range. Since gaps are common in trading ranges, it would not be particularly bullish. Traders already expect a rally to the April 10 high.
The 60 minute chart is in a bear channel as long as it continues to make lower highs. Consequently, if today goes above Monday’s high, the bear channel will have evolved into a trading range or possibly a bull trend. If the breakout is strong, the odds would be that it is in a bull trend. Furthermore, it could lead to a 20 point measured move up above Monday’s high. Because of this possible breakout, today therefore has an increased chance of being a bull trend day. Since most days over the past month have been trading range days, the odds still favor a trading range day.
EURUSD Forex market trading strategies
The daily EURUSD Forex chart rallied 8 days and two legs up from a test below the bull trend line. It is also at the apex of a triangle.
Two weeks ago, I said that the selloff would probably reverse up for 2 legs and 100 – 150 pips on the daily chart. While the rally has been only 8 days, it is close enough for traders to believe that the bulls have now met that minimum objective. In addition, the EURUSD is now around a 50% pullback from the March 27 lower high and in the middle of a 6 month trading range. This rally after the strong selloff from that high therefore created a Big Down, Big Up pattern. Hence, there is Big Confusion. Consequently, the market will probably begin to go sideways.
Yesterday was a big bull trend day. As a result, the market will probably need at least a micro double top before it can test down. Consequently, bulls will probably buy the 1st reversal down. Yet, because the bulls have met their minimum objective, they will scalp out. In addition, the bears will begin to sell as well. Therefore, the daily chart will probably go sideways in a narrow range for a few days.
Overnight EURUSD Forex trading
The EURUSD market has been in a 30 pip range overnight. Furthermore, it has had several reversals. Since this is in a strong rally on the 60 minute chart, it is a bull flag. Yet, because the bulls have met their objective on the daily chart, they expect a trading range. As a result, they will switch to scalping. Consequently, if there is a breakout above this 24 hour bull flag, it probably will not go up more than 50 pips before it reverses down.
Since the 8 day rally is in a tight bull channel, bulls will probably buy the 1st reversal down. Support is at the top of the 1st leg up, which is also around a 50% pullback from the 8 day rally.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini sold off in a broad bear channel all day. Limit order bulls made money buying below prior lows, and bears made money selling Low 2 bear flags at the moving average.
The Emini sold off all day, but stayed above yesterday’s low. The bulls therefore hope for a reversal up from a double bottom higher low major trend reversal on the 60 minute chart. Since the bulls have met their minimum objective of a 2 legged rally on the 60 minute chart, the bears are willing to sell again. Because the daily chart is in a bear trend, a big bear breakout can come at any time. Yet, the 60 minute wedge bottom makes it likely that the Emini will test the top of the wedge before the bears sell again.
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.
