Emini expanding triangle buy setup and test of February low
Updated 6:38 a.m.
Today opened with a small gap up, but the 1st bar was a big bear bar. The bulls want an Opening Reversal up from support, like the 5 minute or 60 minute moving averages. Since yesterday’s bull channel was tight, the bulls will buy the 1st selloff, even if it is strong. Therefore, the odds are that the first selloff will reverse up.
The bulls want a trend from the open bull trend. Yet, yesterday’s extreme buy climax, today’s small gap, and the big bear bar on the open make that unlikely. Consequently, if there is an opening rally, it will probably reverse within an hour. The Emini will then enter a trading range.
Therefore, since the bulls will buy the 1st selloff and the bears will sell the 1st rally, a trading range open is likely.
Pre-Open market analysis
After 3 consecutive bull reversal days failed and closed on their lows, yesterday succeeded. It was a bull trend day on the daily chart, and therefore a buy signal bar for today. A gap up today would create a 3 day island bottom. If the bulls get a strong bull trend day, then a rally to a new high will likely be underway.
I have been saying since October that the 1st pullback on the monthly chart would probably last 1 – 3 months. While the selloff has been severe, the odds still favor a new high by late April or in May. The market is now deciding when the rally should begin. After today’s strong reversal, the bears have only a 30% chance of breaking below the February low before there is a new all-time high.
How will March close?
The most important event this week is Thursday’s close. Friday is a holiday so Thursday is the final trading day of the month. It affects the appearance of the monthly chart. The bulls do not want the month to close nears its low. If it does, the odds would favor a break below the February low in April.
Alternatively, if Thursday closes above the 2718.00 open of the month, the month will be a bull inside bar on the monthly chart. That would make a new all-time high likely in April or early May.
Overnight Emini Globex trading
The Emini is up 13 points in the Globex market. If it opens here, it will gap above yesterday’s high. That would create a 3 day island bottom. However, since small gaps usually close early in the day, the odds would favor a test below yesterday’s high.
The bulls want another big bull trend day. That would probably lead to a sharp reversal up on the daily chart after 2 big bear days. Look back at June 28, 2016 on the daily chart to see a similar pattern.
Since that was unusual, it is unlikely to happen again today. More likely, today will disappoint the bulls and confuse traders. Today would do that by not being a strong bull day. Anything less would make traders wonder if the Thursday-Friday selloff will have a 2nd leg down to below the February low. At the moment, the odds are that the low is in.
End of day is important
Even if today is sideways for the 1st few hours, traders need to be ready for a breakout up or down in the 2nd half of the day. Remember, the bulls want to repeat what took place in June 2016. If the bears are unable to get an early selloff, there would be an increased chance of a late rally.
Since yesterday was a buy climax, there is a 75% chance of at least 2 hours of sideways to down trading beginning by the end of the 2nd hour. The bears want a bear trend day. Since yesterday was in a tight bull channel, there is an 80% chance that the bears will need at least a 2 hour trading range before they can create a bear trend. Therefore, the bulls will look to buy the 1st selloff, even if it is strong. They know the odds are that it will be minor.
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 failed breakout above March 8 high
The EURUSD daily Forex chart reversed down overnight after 2 legs up from the March 1 low. It is failing in its breakout above the March 8 high and its test of the 1.25 top of the 3 month trading range.
The EURUSD daily Forex chart has rallied for 5 weeks. It turned down overnight from near the top of the 3 month trading range at around 1.25. The bears want a lower high major trend reversal. However, the bulls want a 2 – 3 day pullback from the breakout above the March 8 high.
Because the 4 day rally had 3 strong bull bars, the bull case is slightly more likely. Yet, if today closes near is low and tomorrow is a big bear day, the bear case will become more likely.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart sold off 100 pips in a tight bear channel overnight. While climactic, the odds are that the 1st reversal up today will be minor. Consequently, the bears will sell a 30 – 40 pip rally, betting on a test down today’s low.
The last 30 minutes has been an extreme bear breakout. Since it is late in the overnight trend, it is probably near a climactic end to the trend. The odds favor a test up to the top of this climactic final bear leg today, which is around 1.2405. However, the 5 minute chart will then probably go sideways for 5 – 10 bars and have at least a small test down. If the bulls buy that test down, they will have a major trend reversal.
Since the bear channel is so tight and lasted all night, that major reversal will probably actually only be minor. That means that the bulls will be lucky if they can retrace half of the selloff today. More likely, the best they can do is convert the bear trend into a trading range.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini broke above a triangle and reversed down from a higher high and then lower high major trend reversal. This was also a Final Bull Flag reversal and a head and shoulders top. The bears got a huge swing down at the end of the day
Today had an early rally that failed. The rally was a 2nd Leg Trap, and the reversal was both a Final Flag top and a higher high major trend reversal. There was then a lower high major trend reversal that led to a break below the low of the day. The Emini sold off in a sell climax into the close.
Because the day closed near its low, it is a Low 1 bear flag sell signal bar for tomorrow. Because it is a big bar, there is increased risk and reduced probability for the bears. This reduces the chances of a big selloff tomorrow.
Thursday is the final trading day of the month, and the bulls want a bull body on the monthly chart. That is unlikely. At a minimum, they do not want the month to close on its low.
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.
Traders can see the end of the day bar-by-bar price action report by signing up for free at BrooksPriceAction.com. I talk about the detailed S&P Emini futures price action real-time throughout the day in the BrooksPriceAction.com trading room. We offer a 2 day free trial.
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.
