Emini failed bear breakout after North Korea correction attempt
Updated 6:44 a.m.
The Emini opened above yesterday’s high and immediately pulled back. The bulls want an opening reversal up from the moving average. Yet, since a lower high is likely on the daily chart, bears see the current price as a good price to sell. The odds favor a lower high. Therefore, the odds are against another strong bull day. Since yesterday was mostly sideways after a rally, the odds are that the bears will not get a strong bear day. However, because the daily chart is in a trading range and there has been a 2 day rally, if today is a trend day, a bear day is more likely.
If today is probably not going to be a strong day up or down, then it will probably be mostly a trading range day. The 1st 2 bars were dojis, and the Emini is at the top of yesterday’s tight range. This is therefore a continuation of that sideways price action. In addition, it increases the odds of a lot of trading range trading today.
At the moment, the Emini is Always In Short. Yet, it is in yesterday’s trading range and had 2 dojis. While the bears can still get a strong selloff, an opening trading range is more likely. Furthermore, while a bear trend day is more likely than a bull trend day, if there is a bear trend, it will probably not be strong.
Pre-Open market analysis
The Emini yesterday reversed much of Thursday’s selloff. The rally tested a 50% pullback and the daily moving average. In addition, last week was an outside down week and a sell entry bar. The signal bar was therefore the week before. Yesterday tested back above that low. Yet, the bulls need more. Unless they break strongly to a new all-time high, the bears still have a 50% chance of a swing down for the next 2 – 3 months.
The next week is important. If the bulls can get 3 – 5 consecutive bull bars, they will then have taken control again. Consequently, the odds would favor a new high. However, if the rally fails around Thursday’s high, the bears will look for a swing down.
Because the weekly chart is in a tight bull channel, the best the bears will probably get is a minor reversal on the weekly chart. However, that could still be a 150 points correction and a bear trend on the daily chart.
Overnight Emini Globex trading
The Emini is up 5 points in the Globex market. It is now in the upper half of its 5 week trading range. Yet, the bulls need at least one more big bull trend day before traders will believe they have regained control. The odds still favor a 2nd leg down after last week’s strong bear breakout. Therefore, traders will look to sell this rally, betting on a lower high.
Today will probably open with a gap up. The bulls hope that this reversal up will be like the one from the May 17 failed bear breakout. The bulls need more or bigger bull trend bars before that becomes likely.
More likely, this reversal up will be similar to the one after the September 9, 2016 bear breakout. That rally stalled, and the bears got their 2nd leg down after 2 months in a trading range. The 2nd leg down from the current reversal up will probably be sooner, and it could begin at any time.
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 daily chart has pulled back to its moving average after a buy climax at resistance. Since the channel is tight and the lower high does not have many bars, a pullback into a trading range or bull flag is more likely than a trend reversal. Because of the hesitation at the moving average, the bulls might get 1 more new high before pulling back to the July 26 bottom of the wedge bull channel.
The daily EURUSD Forex chart has been sideways for 3 weeks after a failed break above a tight bull channel. Since that channel is a wedge, the odds favor a test down to the bottom of the wedge. Hence, traders expect a 300 pip pullback to the July 26 low. While it is possible that the correction falls to the July 5 bottom of the bigger bull channel, that is unlikely without first going sideways for a month or two.
Since this is the 1st pullback to the moving average in over a month, it is a 20 Gap Bar buy setup. Typically, this 5 day double bottom bull flag would rally to a new high. However, the buy climax at resistance is probably more important. Therefore, many bulls will not buy until the pullback tests the bottom of the parabolic wedge. Hence, it is more likely that this reversal will continue down to the July 26 low before the bulls will buy aggressively again.
Minor reversal likely
Since the bull channel from the July 5 low is tight and last week’s lower high only had a 3 day rally, the odds are that the lower high is too small to create a major reversal. Consequently, the current selloff is probably minor. That means it will more likely lead to a bull flag or trading range than a bear trend. However, if it lasts 20 or more bars, it will create a trading range. At that point, it could form a top that would have at least a 40% chance of leading to a reversal down to the July 5 low.
Overnight EURUSD Forex trading
The 240 minute EURUSD Forex chart turned down yesterday from a double top lower high. It sold off more over the past hour. The bears want a strong break below the August 9 neck line of the small double top. They would then look for a measured move down to the July 26 low. Because this is a reasonable top on the 240 minute chart, bears who are day trading will look to swing part of their shorts.
However, unless there is a strong bear break below last week’s low, bulls will continue to buy reversals up. This is because the chart is near the bottom of its 3 week trading range. In addition, this selloff is still a pullback to the daily moving average and the daily chart is in a bull trend.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini reversed down from above yesterday’s high and then up from a wedge bottom Opening Reversal up from below yesterday’s trading range.
The dominant feature of the day was the reversal up at the low of the day. While the rally lasted all day, it was weak. Furthermore, the bulls failed to close above the open. Therefore today had a bear body on the weekly chart. Hence, the reversal up from last week’s selloff is not as strong as it could be. Consequently, the odds still favor a lower high and a test of last week’s low before a new all-time high. In addition, that would likely be the start of a correction to below the weekly moving average. However, the bulls only need one more strong bull day to take 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.
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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.
