Emini wedge top bear trend reversal at January all time high
I will update again at the end of the day.
Pre-Open market analysis
The cash index reversed down from a small breakout above the January all-time high. The reversal created a sell signal bar on the Emini daily chart. Furthermore, there is a wedge rally over the past 3 weeks. In addition, yesterday closed near its low. Finally, if today gaps down, yesterday will be a 1 day island top.
While these factors are good for the bears, the 5 day rally is in a micro channel. Also, the 5 month bull channel is tight and therefore strong. And, the all-time high in the Emini is still a magnet above. While the bears have a good setup coming into today, a minor reversal is more likely than a bear trend on the daily chart.
But, if the bears get a series of big bear days over the next week, traders will conclude that the bears might get a swing down for a month or more. I want to continue to remind traders that there is still a 30% chance of a break below the February low and a measured move down to 2200 before there is a break far above the January high.
Overnight Emini Globex trading
The Emini is down 8 points in the Globex session. Today will therefore probably gap down. That would create a 1 day island top. Since the 5 day bull channel is tight and the weekly chart is also in a tight bull channel, the reversal will probably be minor.
However, there is a 3 week wedge top on the daily chart and that top is at the January high. Therefore, there is an increased chance of a big bear trend day today. In addition, the selloff might continue down for a few days and have at least 2 legs on the 60 minute chart.
Yesterday’s selloff was climactic. There is a 50% chance of follow-through selling in the 1st 2 hours, but only a 25% chance of a strong bear trend day. If there is a series of big bear bars on the open, that probability will go up.
Also, after a sell climax, there is a 75% chance of at least 2 hours of sideways to up trading beginning by the end of the 2nd hour. However, the bears will sell rallies today since a 2nd leg down is likely after yesterday’s strong reversal down.
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. My goal with these charts is to present an Always In perspective. If a trader was trying to be Always In or nearly Always In a position all day, and he was not in a position at the moment, these entries would be logical times for him to enter.
EURUSD Forex bull trend reversal after Final Bear Flag
The 6 day rally has 5 bull bars with very little overlap. In addition, it has completely reversed the August 8 sell climax. The bear trend has ended so the odds favor sideways to up for at least a month.
The 6 day reversal up from a sell climax is strong. The bears have lost control. Since the rally totally reversed the final sell climax, there is now a Big Down, Big Up pattern. The result is usually at least a few days of sideways trading. However, I have been writing for several months that the weekly chart is in a bull trend and that the bear trend on the daily chart would reverse back up. This reversal is strong enough to make a resumption of the weekly bull trend likely.
Since the rally is now back in the 3 month trading range, it might get stuck here for a while. For 4 months, traders concluded that a range between 1.15 and 1.18 was a fair price. They will probably have that same opinion for at least a month. Less likely, the rally will continue far above 1.18 before pulling back, or reverse back below 1.12.
Since the daily chart will probably trade sideways to up for at least a month, the bulls will buy pullbacks. There have been no pullbacks in the strong 6 day reversal. Therefore, the bulls will buy at the prior day’s low.
For the bears on the daily chart, they will need at least a micro double top before there is a 2 – 5 day leg down. However, they now believe that the 1st selloff will form a higher low. Therefore, they will only hold onto their 1st short for 1 – 3 days.
Overnight EURUSD Forex trading
The rally on the EURUSD 120 minute Forex chart is in a tight bull channel. In addition, it is in its 3rd leg up. This is a parabolic wedge. Furthermore, it is testing the August 8 sell climax high. Consequently, the odds favor a 100 pip pullback for at least a day or two starting today or tomorrow.
The 5 minute chart rallied strongly overnight. However, it, too, is in a wedge. Therefore, there is a nested wedge. This makes the rally likely to pause starting today or tomorrow. The bulls will buy pullbacks, especially down to 1.15 and 1.1550. However, the bears will begin to sell today, expecting at least a 50 – 100 pip pullback starting soon.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Here are several reasonable stop entry setups for today. I sometimes also show limit order entries and entries on the close of bars. My goal with these charts is to present an Always In perspective. If a trader was trying to be Always In or nearly Always In a position all day, and he was not in a position at the moment, these entries would be logical times for him to enter.
The Emini reversed up after yesterday’s sell climax. However, the rally evolved into a trading range. While today is a High 1 buy signal bar on the daily chart for tomorrow, yesterday’s selling on the 5 minute chart make more sideways trading more likely than a bull trend tomorrow.
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.
