Gap down will create Emini October island top
Updated 6:48 a.m.
The Emini gapped far above yesterday’s bear channel, but sold off on the open. The bears want a strong break below Thursday’s high to close the gap on the daily chart. They then want a big bear trend day.
However, because today gapped far above yesterday’s low and yesterday was a big outside day, today will probably be either an inside day, or it will find buyers below yesterday’s low. Since it sold off strongly, the odds are against a strong bull trend day. However, since today will probably mostly overlap yesterday, this early selloff could be simply a test of yesterday’s low. It could then lead to an opening reversal up that could last all day. While that would be a reversal day and a bull day, the odds are that it would not get above yesterday’s high.
Since the odds are now against a big drop below yesterday’s low and a breakout above yesterday’s high, today will probably be a trading range day that is mostly inside yesterday’s range. If the bears break strongly below yesterday’s low, they could then get a bear trend day.
Pre-Open market analysis
The Emini gapped to a new all-time high yesterday, but then reversed down in a tight bear channel to below Friday’s low. This means yesterday was an outside down day. Since the weekly and monthly charts are more overbought than anytime in 50 years, there is an increased probability of a reversal down within the next few week. However, until there is a strong reversal, there is no reversal. Consequently, the odds continue to favor at least slightly higher prices. But, the Emini will probably not get much higher before it corrects more than 100 points.
Since Friday was a gap up to a new all-time high, a gap down at any point in the next couple of weeks would create an island top. While island tops and bottoms are minor reversal setups, the buy climaxes increase the odds of a major reversal.
The bears need a big bear day and then a follow-through big bear day before traders will begin to think that the bears might be taking control. Since yesterday was a strong outside down day, traders will watch to see if today becomes a big bear day. Until there is a big reversal down with strong follow-through, the odds are that every reversal will be minor. This means that a bull flag or trading range is more likely than a bear trend.
Overnight Emini Globex trading
The Emini is up 5 points in the Globex market after yesterday’s sell climax. With the Globex up 5 points, that creates a Big Down, Big Up pattern. Because that means the bulls and bears are balanced, it favors a trading range over the next couple of hours, and possibly all day.
Since yesterday was a sell climax day, there is only a 25% chance of a strong follow-through bear day. With the Globex market up 5 points, the odds are against a big gap down and an island top. This means the bears will not be able to create their strongest sell pattern. However, there is a 50% chance of some follow-through selling on the open. Furthermore, it can be strong. Additionally, there is a 75% chance of at least 2 hours of sideways to up trading that begins by the end of the 2nd hour. Finally, there is a 25% chance of a bull trend day, which would reverse yesterday’s selloff.
There were several reasonable buy setups yesterday, but most traders would not have taken them because of the bear trend. Some institutions did buy them, and scaled in lower. Since all were losers, they are all magnets today. They will then exit around their 1st entry, getting out breakeven on that 1st entry and with a profit on the lower entry. The highest buy signal bar was around 2570, which is a couple of points above the Globex high. It is also around halfway up from yesterday’s selloff. Therefore there will also be bears selling there since it is a 50% pullback.
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 Forex market trading strategies
The EURUSD daily Forex chart has been in a triangle or wedge for 3 weeks and it is therefore in Breakout Mode. Furthermore, that wedge is within a 3 month trading range.
The odds favor a break below the trading range on the daily chart before a break above the top. This is because the weekly moving average is an important magnet and it is just below (not shown on chart). However, since the daily chart is in a trading range, it could test up to the top before testing the weekly moving average below. In either case, the odds favor a continued trading range for at least a few weeks.
Since the rally on the monthly chart is in a tight channel, a break below the trading range on the daily chart will probably be a minor reversal. This means that a bull flag on the monthly charts is more likely than a reversal into a bear trend. Yet, the selloff could be deep enough on the daily chart to be a bear trend. Any selloff on the weekly chart would be either a bull flag or a bear leg in what will become a trading range. Since the bulls will buy any selloff over the next couple of months, the selloff will probably not fall much below the 1.1600 top of the 2 year range below, or the July pullback low just above 1.1300.
Overnight EURUSD Forex trading
The 5 minute chart has been in a 30 pip range overnight. Yesterday’s selloff tested just below last week’s low and then bounced. The 200 pip 3 week range is likely to continue today. Therefore, today will probably be another small trading range day, like yesterday. Since the EURUSD is bouncing after breaking below last week’s low, if there is a small trend today or tomorrow, up is more likely that down.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini opened in the middle of yesterday’s range, reversed up from above yesterday’s low. I closed near the open and formed an inside doji day.
Today was an inside day after yesterday’s big outside down day. It is therefore an ioi breakout mode setup. This means today is both a sell signal bar and a buy signal bar for tomorrow. Since the daily chart is in a bull trend, the odds favor higher prices. Yet, the buy climaxes are extreme. This makes a pullback likely to begin within the next several weeks.
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.
