Emini bull leg in trading range in weekly buy climax
Updated 6:55 a.m.
The Emini reversed up from below the 3 day trading range. Yet, there was a 2 tick tail on the top of the buy signal bar. In addition, the entry bar was a bear bar. While the next bar was good, the following bar was not a strong bull trend bar. Hence, while the chart is Always In Long, the lack of a strong reversal up increases the chances that today will be another day with mostly trading range trading.
The odds are that the Emini will again test last week’s high, which is exactly yesterday’s high. It is too early to know if the bulls will succeed today. It is more likely that today will fail to get above yesterday’s high to create an outside up day. More likely, if there is a bull trend, it will probably be weak. Furthermore, there will probably be at least one swing down.
While the bears want an opening reversal down from the 60 minute moving average, they do not have significant selling yet. Plus yesterday’s high is a magnet. The odds are therefore against a bear trend day. However, if the bears begin to create consecutive strong bear bars, they could take control.
In conclusion, today will probably be either a weak bull day or a mostly trading range day.
Pre-Open market analysis
The Emini has had 3 consecutive mostly trading range days. The bears want the 4 day rally to form a lower high and then break below last week’s low. However, the bulls want a new all-time high. Because of the extreme buy climax on the weekly chart, the odds are against much higher prices before there is a pullback to the weekly moving average.
While yesterday is a sell signal bar on the daily chart for a lower high major trend reversal, the reversal up was strong. Therefore, most bears will want at least a micro double top before selling for a swing down. Consequently, the downside risk over the next few days is small.
Overnight Emini Globex trading
The Emini is down 5 points in the Globex market. The 4 day rally is in the top half of the month-long trading range. In addition, last weeks’s selloff was strong enough so that traders will sell this rally, look for at least a test of last week’s low. The past 2 days have bear bodies. This represents selling. Yet, the 4 day rally was strong. Hence, there is a Big Down, Big Up pattern on the daily chart. This therefore creates Big Confusion, which is a hallmark of a trading range. Consequently, the odds favor at least another day or two of sideways trading. The bears will probably need a micro double top before they can begin their test down. The bulls need a strong breakout, which currently is less likely.
The past 3 days have been trading range days. Since the probability favors the bears over the next week or two and they need a micro double top, today will probably be another trading range day.
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 bears have a lower high major trend reversal on the 240 minute chart. It is also a head and shoulders top. Last night, the bears got a small break below the 3 week range. They need follow-through selling today or tomorrow. Without that, the bulls will get a reversal up from an expanding triangle bottom at the bottom of a 3 week trading range.
The daily EURUSD Forex chart has been in a trading range for 3 weeks. There are therefore always reasonable buy and sell setups. The market is in breakout mode, which means that the probability for the breakout is about the same for the bulls and bears.
On the 240 minute chart, the bulls have a 3 week bear channel, which is a bull flag. They need a strong break above the bear trend line. If they succeed, there will probably be sellers above the high because the monthly chart is at resistance.
The bears have a lower high major trend reversal on the 240 minute chart. They need a strong breakout below. If they get it, the selloff will probably fall for a measured move down. Since the weekly chart is in a tight bull channel, a strong selloff on the 240 minute chart will probably only be a bull flag or trading range on the weekly chart. Hence, the downside over the next several months if probably 300 pips. However, it could be as much as 700 pips if it is going to lead to a big trading range.
Overnight EURUSD Forex trading
The 5 minute chart sold off 100 pips in a tight bear channel overnight. Yet, there was a sell climax and a reversal up over the past hour. This came on a break below the 3 week range. Most trading range breakouts fail. Therefore bears buy back their shorts to take profits. Furthermore, bulls buy, betting on a failed breakout.
Most climactic reversals form trading ranges. That is therefore likely here over the next couple of hours. Then, the market is again in breakout mode on this time frame. There will be both a reasonable swing buy and swing sell setup. Because the momentum down is good, the bears initially have higher probability. However, the location is good for the bulls. Therefore, if they can continue to prevent a successful bear breakout for 20 or more bars, the probability of a reversal up will increase to about the same as that for a successful bear breakout.
Since a trading range is likely, many day traders will scalp. However, the location is good for a major trend reversal up on the 5 minute chart. Therefore bulls will look for swing buy setups after about an hour. In addition, since the momentum down is strong, bears will look for a strong sell setup, like a double top bear flag or a big Low 2 sell setup. They will then swing trade at least part of their short position.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini had a small pullback bear trend day today.
The Emini had a tight bear channel today. Since this is a sell climax, there is a 25% chance of continued selling in the 1st 2 hours tomorrow, and a 25% chance of a bull trend day. There is a 50% chance of at least 2 hours of sideways to up trading beginning by the end of the 2nd hour. Since tomorrow is a Friday, weekly support and resistance are magnets. Last week’s low and close are the most likely targets for the end of tomorrow.
Because of the sell climax on the weekly chart, the odds are that the Emini will test the March or May lows between 2300 – 2350. If tomorrow gaps down and becomes a strong bear day, traders will conclude that the bears have taken control and a 2 – 3 month correction is underway. If tomorrow is a bull day, that would be bad follow-through for the bears. While the odds still favor a test of 2350, the selloff will probably be in a weak bear channel.
Less likely, tomorrow will be a strong bull reversal day. If so, then today could be the end of a 2 legged correction down from the high. The bulls would need a strong reversal up for 2 – 3 days before the bears would give up.
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.
