Trump rally testing bull channel top and measured move targets
Updated 6:48 a.m.
The Emini gapped above yesterday’s bull channel, but began with 2 bear bars. Since 75% of bull breakouts above bull channels fail, this one probably will as well. However, the initial target is the bottom of the channel. Since the channel is tight, that would not take much of a selloff. Furthermore, a tight bull channel usually does not reverse into a bear trend without 1st entering a trading range. Consequently, the best the bears can probably get over the next hour is a bear leg in a trading range.
Since the initial bear bars are small, the bulls are hoping that they lead to an opening reversal up and a bull trend day. Yet, after yesterday’s buy climax, the best the bulls will probably get is a rally for an hour or two.
This open and this context makes an early trading range likely. After a couple hours of sideways trading, either starting on the open or by the end of the 2nd hour, the Emini will be in breakout mode.
Pre-Open market analysis
The Emini had a small pullback bull trend day yesterday. It above the top of the 6 month bull channel. However, 75% of bull breakouts above bull channels fail within 5 bars. I always look at the highest time frame that shows the channel. Traders want legs that have at least 10 bars.
Top of bull channel
Since the legs are too small on the weekly chart, traders will pay attention to the daily chart. Therefore, there is a 75% chance of a reversal down within the next 5 days. Will it reach the bottom of the channel? It never looks like it will, but it usually does. It can get there by going sideways or down.
There are still measured move targets above. Consequently, the is a magnet that is pulling the market up to those targets. Will the daily chart reach those targets in the next 5 days and then reverse? No on knows. However, the Emini is in a buy climax and at another resistance level. Therefore traders will look for s reversal setup for a 3 month correction.
Because there is no top or strong reversal down yet, the odds still favor at least slightly higher prices.
Overnight Emini Globex trading
The Emini is up 2 points in the Globex market. Yesterday was an unusual small pullback bull trend because there was not even a little profit taking in the final hour. While this means the bulls were strong, it also makes the rally more climactic.
When there is a strong trend day like yesterday, there is a only a 25% chance of another strong trend day today. Yet, there is a 50% chance of follow-through buying in the 1st 2 hours. Finally, there is a 75% chance of at least a couple hours of sideways to down trading beginning by the end of the 2nd hour.
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 pulled back overnight to below the July 12 high. It therefore closed the gap. The bears usually need 3 consecutive bear days before traders will begin to believe that a reversal has begun. If it has, it will probably lead to a trading range for at least a couple of weeks. March has an example of this.
The EURUSD Forex market broke strongly above the 2nd top of a wedge on the daily chart. That increased the odds of a measured move up. While the bulls will allow the gap above the July high to close by 10 – 20 pips, they do not want a lot of overlap. This is because if the pullback falls 50 or more pips below that high, or if there are 3 consecutive bear days, the odds are that the bears will win.
Since the 6 month channel is tight, a win by the bears will be a pause in the bull trend. Therefore, the best they can probably get over the next several weeks is a trading range, not a bear trend. Yet, if they can create a trading range, they then will try for a major reversal into a bear trend.
Top of 30 month trading range on weekly chart
While a wedge top often leads to a trend reversal, this pattern is too small on the daily chart. However, it is big enough on the 240 minute chart to lead to a bear trend on that chart. But, that would simply be a pullback on the daily chart.
As strong as the rally has been for 6 months, the weekly chart is still in a 30 month trading range. Since most breakouts fail, the odds are that the weekly chart will soon begin to go sideways for many weeks. However, there is still room to the top of the range. Consequently, even if the bears get a 300 – 500 pip pullback, a big trading range is more likely than a bear trend on the weekly chart.
Overnight EURUSD Forex trading
The 2 day pullback continued overnight. As a result, the selloff dipped below the July 12 high. That was the breakout point and it is therefore support. The odds are that the selloff will end today. But, the selloff has been in a tight bear channel on the 60 minute chart. Therefore, the best the bulls will probably get today is a bounce and a trading range.
Since the 2 day momentum down is strong, bears will sell rallies. Since the EURUSD market is now at support, the bulls will buy. Because this creates confusion, the result is both will take profits. As a result, this buying low, selling high, and quick profit taking will lead to a trading range.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini reversed up from a parabolic wedge on the open. Yet, the pullback from the rally was deep. Consequently, the day remained mostly a trading range day.
The bears sold above yesterday’s high, but since yesterday was such a strong bull trend day, the best the bears could get was a bear leg in a trading range. Even though there are parabolic wedges on the daily and monthly charts, the odds favor at least slightly higher prices near term.
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.
