Emini buy climax is waiting for a catalyst
Updated 6:53 a.m.
Yesterday reversed down from above last week’s high at the end of day. Today, the bulls are trying to reverse the Emini up from below yesterday’s low and the 60 minute moving average. The Emini is Always In Long. Yet, the Emini has been in a tight range for a month. Consequently, traders correctly assume that every attempt to start a strong trend will fail.
The bulls need a strong rally to convince traders that this will be the low of the day. Without it, this will probably be another trading range open. While the rally has several bull bars, the bars are small. The bulls need much stronger bars if today is to become a strong bull trend day.
In a trading range environment, the market constantly disappoints trend traders. As a result, many wait for 2nd signals or strong breakouts before entering. Furthermore, unless the breakouts are very strong, they are quick to take profits. The result is that the trading range tends to continue.
Pre-Open market analysis
The Emini had a small day yesterday. It is in a 3 week trading range above the daily moving average. Therefore,odds favor higher prices. Yet because the weekly chart is in an extreme buy climax, the probability is that traders will look to sell a reversal down from a new high. Since most days over the past few weeks have spend a lot of time in tight ranges, that is likely again today.
Risk of buy climax on daily chart
There is already a buy climax on the weekly chart. However, the inability of the bears to reverse the Emini down increases the chances of a buy climax on the daily chart as well. There is a reasonable possibility that a bull breakout could be big and fast.
When the is a buy climax, like on the weekly chart, the bears expect a reversal down into a pullback. They therefore continue to short. If the bulls can get a breakout at a time when the weak bears think the odds are beginning to favor them, the bears sometimes give up. This can result in a brief, big rally.
If that happens, the bulls might see it as a gift. If so, they will take profits and wait several week’s before selling again. Strong bears will see it as a great, brief opportunity to sell at an exceptionally high price. With strong bulls and bears selling, there is often a climactic reversal down. Since the weekly chart is in a tight bull channel, the best the bears will probably get is a trading range that lasts a couple of months.
Overnight Emini Globex trading
The Emini is down 3 points in the Globex session. There is no evidence to suggest that the 4 week’s of mostly trading range price action will end today. Because of the bull trend on the daily chart, the odds still favor higher prices.
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 bulls have retraced about half of Friday’s selloff. If they can break about Thursday’s major lower high, they will probably then get a new high. The bears want a 2nd leg down, even if there is 1st a new high.
The EURUSD 240 minute Forex chart has been in a weak bull channel up from Friday’s low. Friday’s selloff was strong enough to make a 2nd leg sideways to down likely. Yet, the 1st reversal down in a tight bull channel is usually minor. This means that it typically leads to either a bull flag or a trading range. If the bulls can break strongly above Thursday’s high, the rally will probably reach the next resistance. That is the 1.2000 Big Round Number. As long as the bulls do not get that strong breakout, the odds still favor a 2nd leg sideways to down.
Nested Spike and Channel bull trend
The chart has a nested Spike and Channel rally. The bigger breakout (Spike) began on June 26, and the 2nd smaller one began on July 26. The channels began at the lows of the pullback from those breakouts. As a result, the 1st target for the bears is the July 26 low around 1.1600.
The channel is tight on the daily chart. Therefore, the chart will have to evolve into a trading range before the bears will have a reasonable chance of reaching the July 5 low. That is the start of the bigger bull channel.
Overnight EURUSD Forex trading
The 5 minute chart has been in a 15 pip range overnight. That range is part of a bull channel that began at Friday’s low. The rally is now around a 50% pullback from Friday’s low. This is therefore a resistance area. The bears want a resumption of the bear trend. However, they need a strong bear breakout before traders will trust that the 2 day rally is complete.
The bulls want an endless pullback up from Friday’s bear reversal. They then was a strong break above this 2 day bear flag. The 240 minute chart is therefore in breakout mode at resistance. Traders are deciding if the bear trend will resume, or if the bulls will get a break above this 2 day bear flag. If they get a strong breakout, traders expect a test of Thursdays major lower high around 1.1900.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini rallied to a new all-time high. It then reversed deeply to a new low after a Spike and Parabolic Wedge bull channel.
The Emini rallied strongly to a new all-time high. Yet, it failed to reach the 2500 Big Round Number. Furthermore, it reversed down deeply. For the bears, today is a sell signal bar for a failed breakout above a 4 week trading range. In addition, the Emini is at the top of a 4 month bull channel.
The bears need a strong entry bar tomorrow and good follow-through over the next several days to convince traders that they are in control. While the context is good for the bears, most reversals fail. Hence, the bears need 2 or 3 strong bear bars over the next few days to convince traders that they have taken control.
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.
