Emini bear breakout below bull flag and wedge top
I will update again at the end of the day.
Pre-Open market analysis
The Emini traded down for a couple of weeks from a 3 month wedge top. The bulls hoped the selloff was going to be a bull flag and lead to another leg up. Instead, the bears yesterday got a bear breakout below the bull flag. In addition, there is a wedge rally on the weekly chart.
I wrote over the weekend that the Emini would probably fall below the May 22 high this week. Yesterday, it fell far below. It was a surprisingly big bear day and therefore the odds favor at least a small 2nd leg down over the next several days.
Since yesterday was a big day, today has an increased chance of being a small day or an inside day. But, since at least a small 2nd leg down is likely, traders will sell rallies today and tomorrow.
June 26 to July 5 is seasonally bullish. In addition, the Emini is now back to the May trading range. Therefore, there is an increased chance of a mostly sideways market for a week or two.
Overnight Emini Globex trading
The Emini is up 2 points in the Globex session after trading in a tight range overnight. Yesterday’s late reversal up reduces the chance of strong follow-through selling today. Furthermore, yesterday was in a big trading range after the 2nd hour. Therefore, today will probably have at least one swing up and one swing down. Because the legs yesterday were big, day traders will probably get several chances to swing trade again today.
But, yesterday was climactic. Therefore, traders are exhausted. Today will probably be mostly sideways.
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 bear flag at 50% pullback, but bottom of trading range
The EURUSD daily Forex chart is stalling at the EMA after a 50% pullback from a selloff 2 weeks ago. Since this 4 day bear flag is at the bottom of a month-long trading range, the odds are against a strong selloff.
The EURUSD daily Forex chart has a bear bar so far today. After a 3 day strong rally, the bear body represents stalling at resistance. While it can reverse down and break far below the double bottom, the 3 bull bars indicate aggressive bulls. Consequently, there are probably more buyers than sellers below today’s low. Most bears will want at least a micro double top before they are willing to sell.
Since the 2 month selloff was a sell climax that tested major support, the odds favor a trading range. This is true even if the bears get a 50 – 100 pip breakout below the June low. The trading range will likely last at least another month. Therefore, traders will be looking to trade 50 – 100 pip moves up and down.
Currently, the odds are that there will be a rally to the June 14 sell climax high before there is more than a 100 pip break below the double bottom. If that rally is strong, the bulls will then try to continue it up to the May 14 high. Less likely, they will retrace back to the March 1 low, which is the breakout point of the bear trend.
While this selloff is a bear trend on the daily chart, it is only a strong minor reversal down on the weekly and monthly charts. The odds favor a 300 – 500 pip second leg down after several months of sideways trading. A rally after that 2nd leg down would then have a 40% chance of leading to a major trend reversal down on the weekly chart.
Overnight EURUSD Forex trading
The EURUSD 60 minute Forex chart had a wedge rally over the past 3 days. That made 2 legs sideways to down likely. The 5 minute chart sold off 70 pips overnight. Since traders expect a 2nd leg sideways to down after a wedge top, the bears will sell a rally today.
If the rally goes above the wedge top, traders will look for the breakout to fail. They will therefore sell a reversal down from above the overnight high.
Because the 3 day rally is strong, traders will buy below the low of the prior day. They know that the odds favor at least a micro double top, which means a test of the overnight high.
The 60 minute chart is probably entering a trading range for a few days. Day traders will therefore look to buy reversals up from 50 – 100 pip selloffs and sell reversals down from 50 – 100 pip rallies. Since the 5 minute chart has been in a 30 pip range for 5 hours, many day traders will look for 10 pip scalps while they wait for swing setups.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
After an early trading range, the Emini today had a weak rally in a trending trading range day. It closed near the open to form a doji day.
Today was an inside day and a bull doji bar on the daily chart. It is therefore a buy signal bar for tomorrow for a failed bear breakout yesterday. In addition, the stock market is seasonally bullish for the next week. However, the 3 week bear channel is tight. Therefore, the Emini might have to go sideways for a few days before the bulls can regain control.
Since yesterday had a big tail below and today did not have strong selling, the odds of a strong swing down are now less.
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.
