Weekend report table of contents
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Market Overview: Weekend Market Analysis
The SP500 Emini is testing the November 5 high. The bears want a reversal down from a higher high double top, and the bulls want the rally to continue up to the top of the bull channel. Since the Emini is in a bull trend (with 7-bar bull micro channel on weekly chart), the odds slightly favor higher prices.
The EURUSD Forex is in an extreme sell climax in a support zone. This should attract some profit taking soon, which will likely result in a trading range for a couple months. The selloff might continue down to the June 19, 2020 higher low before the trading range begins.
EURUSD Forex market
The EURUSD weekly chart
- This week’s candlestick on the weekly EURUSD Forex chart was the 2nd consecutive big bear bar closing near its low.
- The selloff is breaking below the support of the March 9, 2020 high. A breakout with consecutive big bear bars usually has at least a small 2nd leg down.
- The breakout sometimes becomes a measuring gap, which would result in a test of last year’s low and the bottom of the 7-year trading range.
- This week also broke below the bottom of the bear channel. A breakout below a bear channel has a 75% chance of failing within about 5 bars. Therefore, the selling should end by the end of the year.
- The end of the selling does not mean the start of a bull trend. Since the selloff has been in a tight bear channel, a trading range for at least a couple months is likely.
- If the bulls can stop the selling and create a trading range, they will have a better chance of beginning a swing up.
- Al has been saying that the EURUSD would probably dip below the March 2020 and possibly the June 2020 breakout points before the 6-month bear trend could end.
- However, there is no sign of a bottom yet.
- The EURUSD has been in a trading range for 7 years. When there is a trading range, traders look for reversals. When a market is in a trading range and it gets near support or resistance, it usually goes beyond it before reversing, as it has done now.
- The 2021 selloff is still more likely a pullback from the 2020 rally than a resumption of the bear trend that began 14 years ago. There is no credible bottom yet, but a reversal up is likely before there is a breakout below the bottom of the 7-year range.
- Since this week closed as a strong bear bar, odds are the EURUSD should trade at least slightly lower next week.
- The bears want a strong break below the June 19, 2020 low and a continuation of the measured move down. They need several strong bear bars closing near their lows to convince traders that the move is underway.
- Can next week be a big bull bar closing near its high? It is possible. It would then form a 2-bar reversal, and it would increase the odds that a reversal has started.
- The bulls will need at least a strong bull reversal bar or consecutive bull bars closing near their highs before traders will begin looking for a reversal up.
- There is always at least a 40% chance that the opposite of what is likely will happen. Consequently, there is at least a 40% chance that the selloff will continue down to near the bottom of the 7-year trading range.
The EURUSD Daily chart
- The EURUSD had follow-through selling and broke below the bear channel early in the week. The pullback on Wednesday and Thursday tested the trend channel line, and the test led to a new 17-month low.
- However, Friday had a prominent tail below.
- The bears want the sell climax to continue. However, it is extreme, and it should begin to attract profit takers.
- An extreme sell climax that has a brief reversal, like over Wednesday and Thursday, often has a 1- to 3-day final leg down before exhausted bears begin protracted profit taking.
- Also, a break below a bear channel usually fails within about 5 bars.
- There might be more buyers than sellers below Wednesday’s low. If so, the bear trend should convert into a trading range over the next couple of weeks.
- Traders will likely decide over the next week if it’s time to take some profits.
- A reasonable minimum goal when there is profit-taking is at least a couple of legs sideways to up and lasting about 10 days.
- Since 2 legs are the minimum, traders will buy the first 1- to 3-day selloff after the 1st rally from the bottom.
- The first target for a reversal up after a sell climax is the most recent lower high which is November 18 high. That is the neckline of the micro double bottom. The bulls want a measured move up. The bears will try to get another leg down from a double top with Thursday’s high.
- If the rally is weak, the selloff will continue down to the June 19, 2020 low of 1.1168.
- If the bulls get several bull bars closing near their highs, this reversal could be the start of a 1- to 2-month rally.
- As strong as the 2021 bear trend has been, it is still only a bear leg in a 7-year trading range. Traders should expect a bull leg at some point.
S&P500 Emini futures
The Monthly Emini chart
- The November monthly Emini candlestick currently is a bull bar at the all-time high. So far it is a strong breakout above the Sept-Oct OO (outside-outside) pattern.
- The bulls want a test of the trend channel line around 4820 and a measured move to 4934.50 based on the height of the OO pattern (which is the height of the October bar).
- September was the third time that a bear bar interrupted the strong rally on the monthly chart. A third reversal attempt has a higher probability of leading to a 2- to 3-bar sideways to down pullback.
- Al has said that most prior bear bars in buy climaxes on the monthly chart led to a 2nd bear bar within a bar or two. That means the bears hope that November rallies and then reverses down at the end of the month to close below the open of the month. Therefore, the bears will try to create a bear bar in November. If they are successful, it will probably lead to lower prices in December.
- Will that happen? With October being surprisingly strong, November will likely be another bull bar. Traders will begin to wonder if the Emini will reach the 5,000 Big Round Number before there is more than a one-month reversal.
- How much higher can the buy climax continue? Climactic rallies often last far longer than what might appear reasonable.
- An OO pattern is a pause and a brief area of agreement. It is usually an expanding triangle on a smaller time frame.
- A breakout from a triangle usually tests back to the triangle, where the bulls and bears last agreed on a fair price.
- Therefore, there is an increased chance that it will be the Final Bull Flag before there is a correction lasting at least a few bars (months).
- However, the breakout above the OO often lasts several bars before there is a reversal.
- For now, the odds slightly favor sideways to up in November.
- However, there is always a bear case, and it always has at least a 40% chance of happening.
- But even if it does, the best the bears will probably get is 2 to 3 months of sideways to down trading before the bulls try for another leg up.
- There are 6 trading days left before November candlestick closes.
- The bulls want a big bull bar closing near its high, which should lead to higher prices in December.
- The bears want a close below the open of the month or at least a prominent tail above to reduce the bullishness. They would then have a better chance of sideways to down trading for a couple months.
The Weekly S&P500 Emini futures chart
- This week’s Emini weekly candlestick made a new high but closed as a bull doji bar. There is now a 7-bar bull micro channel, which means strong bulls.
- The last 3 weekly bars are overlapping, which means the Emini is in a small trading range.
- While there is a micro double top, a bull doji bar is a weak sell signal bar for a strong reversal down. This is especially true in a tight 7-bar bull microchannel, which represents relentless aggressive buying.
- The bears want a higher high major trend reversal with the September high. The bears would need a surprisingly strong bear bar or series of bear bars closing near its low before traders would look for a reversal.
- Al has said that there is a seasonal strong tendency to rally from November 11 to December 5. Although it is difficult to construct a profitable strategy using calendar tendencies, they are factors to consider. Traders looking for a big selloff in a bull trend during a seasonally bullish time need very strong bear bars before shorting.
- The next target for the bulls is the top of the bull channel at 4775. Above that is the measured move target at 4802.00 based on the height of the 4-month trading range (Jul-Oct).
- So far, the Small Pullback Bull Trend is still intact. A Small Pullback Bull Trend ends with a big pullback. That means a pullback that is at least 50% bigger than the biggest prior pullback. Here, the strong bull trend will remain intact until there is at least a 15% correction.
- Once it ends, the bull trend typically converts into a trading range. Initially, the odds are that it will be a bull flag. Traders should expect the trend to resume. If it does, it is usually a weaker bull trend.
- If the trading range lasts 20 or more bars, the probability of a reversal into a bear trend begins to approach 50%.
- For now, the odds slightly favor sideways to up for November unless the bears can create consecutive strong bear bars closing near its low.
The Daily S&P500 Emini futures chart
- The Emini tested the November 5 high this week.
- There have been 3 small pushes up over the past 6 days. Friday was a bear reversal bar closing near its low. It is a sell signal bar for a micro wedge and a double top with the November 5 high. That increases the chance of at least a couple small legs sideways to down over the next week or two.
- The bears will need a series of bear bars closing near their lows before traders will look for a bear trend.
- It is more likely that any selloff will form another trading range, like every other reversal attempt since the pandemic low.
- However, the bull trend has been extreme on all time frames. A bear trend can begin at any time.
- Is this the high of the year? It might be, but there have been many other attempts at a bear trend reversal, and all have failed. Therefore, the odds continue to favor higher prices.
- Traders will continue to bet on new highs until there is a clear, strong reversal down.
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Weekly Reports Archive
You can access all weekly reports on the Market Analysis page.
The 2 week sell off we have in the Euro on the weekly chart could be either a spike or a climax. We could either be breaking below a wedge shaped bear channel and trade down in the shape of another channel or we could be in a sell vacuum test of support.
How does a trader differentiate between the two cases? Do we need more price action and see how the market behaves after the breakout (the last 2 bear trend bars on the weekly Euro chart)?
Normally, consecutive big bear bars closing on their lows and breaking below support would be a good candidate for a measured move down. However, the EURUSD is also breaking below a bear channel, and that typically will fail within about 5 bars. Therefore, it is more likely that there probably will not be strong follow-through selling. As we wrote, it is more likely that the EURUSD will soon transition into a trading range for a couple months.
On the monthly EURUSD chart there is a trendline that looks important and it could form a big triangle if it goes there. First touch was in 2016 and the second in 2020. There is also an even older trendline all the way back to 2000. Could these trendlines be magnets? Thank you.
Yes, I have mentioned before that the entire 7-year trading range could evolve into a triangle. That means that the lines are magnets.
But the bottom of the triangle is close enough to last year’s low to make that low a more important magnet. If it gets down to the trend line, many traders would want to see it reach last year’s low. The bulls would then want a double bottom higher low major trend reversal. The bears would want the selloff to break below the 7-year range and continue down for a measured move. It is more likely that there will be a reversal up instead of a successful breakout below.
Dear Al, Thanks for the detailed report. I would like to challenge you on the climatic definition. The market so far on Monthly, weekly and even higher time frame (quarterly & even yearly) is clearly respecting the trend line and trend channel line as well. To me climatic events are when the price in the bull case overshoots the trend channel line and goes exponentially higher. This is not the case so far thus wondering if the climatic definition is the right one to use? Yes I can agree the bull move is intact for so long and one should expect correction at any given moment but as long as price respects the channel why to define this as climatic? Same goes for MSFT, it is in clear bull channel as of 2015 respecting both trend line and trend channel line so would you define MSFT as climatic too?
We simply are defining the word “climax” differently. Since many strong, protracted rallies reverse sharply before breaking above a channel, I still use the word “climax” to describe them. If a buy climax breaks above the channel and then reverses, I use the term “parabolic wedge buy climax.”
MSFT is not alone. Many stocks are in parabolic buy climaxes. But buy climaxes can continue much higher before there is protracted profit taking and the evolution into a trading range. I will write about this in early January.
The question is whether the monthly chart is more like 1995, which lead to a tripling of its price over the next 5 years, or is it more like 2000, which was a blow-off top that led to a 50% loss?
Climactic behavior early in a trend often leads to a huge trend, like 1995. Climactic behavior late in a trend usually leads to strong profit taking. If you believe the current trend began in 2020, this is early. If you believe it began in 2009, like I do, then this is late.
Thanks for clarifying this Al!