Extreme buy climax creating 150 point Emini bear trend reversal
Updated 6:47 a.m.
The sell climax continued on the open. It is so extreme that it is unlikely to continue far. The odds favor a sharp rally and then a trading range. The most important price today will be the open of the day. If today closes below the open, the daily chart will have a bear body. That would therefore increase the chances of lower prices over the next several weeks. There is a 50% chance that today will form a trading range around the open of the day, and then decide in the final minutes whether to close above or below the open.
Because and extreme sell climax usually leads to a trading range for at least a couple of hours, that is what is likely today. Hence, while the Emini is now Always In Short, most traders should only sell pullbacks. The bulls need either a strong reversal up or at least a micro double bottom before they should buy.
Pre-Open market analysis
The Emini had a big bear trend day yesterday. Last week was an outside down week on the weekly chart. It reversed down from a wedge and an extreme buy climax. The bears needed good follow-through selling this week to increase the chances that the reversal down to the May or March lows has begun. If this week closes near its low, it will increase the chances that the correction is underway. At the moment, there is a 60% chance that a 100 – 150 point pullback has begun.
Since today is Friday, weekly support and resistance is important. The targets are last week’s low and close. Less likely, the bulls will get a strong rally back up to the low of 2 weeks ago.
Early stage of 2 – 3 month bear swing?
The daily chart is probably in a trading range that began with the March rally. Therefore, if this is the start of a 2 – 3 month bear leg to test the bottom of the range, the odds are that the bears will be disappointed by the lack of follow-through selling. Consequently, if the bull channel is now evolving into a bear swing, the odds are against a strong bear trend. More likely, the Emini will take several months to work down to the May or March low. Once there, it will probably bounce and the trading range will then be clear.
Overnight Emini Globex trading
The Emini is up 2 points in the Globex market. The bulls want the selloff to form a High 2 bull flag after the August 10 1st leg down. The bears need a strong bear day to confirm yesterday’s bear breakout.
Because yesterday was a sell climax, there is only a 25% chance of a strong bear day today. The minimum that the bears want is a bear body. They would see that as confirmation of yesterday’s bear reversal. Consequently, it would increase the odds of some kind of measured move down.
Furthermore, there is only a 25% chance of a big bull day. Finally, there is a 50% chance of at least a couple hours of trading range trading beginning by the end of the 2nd hour.
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 EURUSD Forex chart has been in a tight trading range for 2 days. While it is a bull flag at the moving average, it is after a parabolic wedge buy climax. The odds favor a 300 pip test down to a prior higher low, but it might make one more new high 1st. The odds are that it will test the August 11 high, or above the August high, before reversing down.
The daily EURUSD chart has been in a tight trading range for 10 day. Every bar has prominent tails and small bodies. This is also a 20 Gap Bar buy setup at the moving average. Since the bears have failed to drive the EURUSD daily chart down with a series of bear bars, the odds are that it will soon bounce.
While it might make a new high before pulling back, it will more likely stall at the August 11 lower high. The bears will try to form a double top there. This would create a double top lower high major trend reversal within a tight trading range. If the bears get a good sell signal bar there, they will have a 40% chance of a swing down. There would be a 60% chance of either a continuation of the tight range or a breakout to a new high.
Because of the buy climax at resistance, the odds favor a test down to a prior higher low. The 1st one is the July 26 low, which would therefore be a 300 pip pullback. Less likely, the selloff will continue down to the July 5 low.
Overnight EURUSD Forex trading
The 5 minute chart is finding support at the daily moving average around 1.1700. Since the daily chart is in a tight range, day traders have been mostly scalping. However, because the bears have repeatedly failed to break below this support, the odds are that the EURUSD Forex market will rally to test the August 11 lower high within a week. Because of the tight range, the rally will probably be brief and therefore the odds are against a lot of swing trading over the next week.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
While the Emini reversed up strongly from below yesterday’s low from a higher low major trend reversal, it sold off back to near the open of the day. It closed 1 tick above the open. Hence the bar on the daily chart had a bull body. It therefore was a weak follow-through bar after yesterday’s strong bear breakout.
Today was the follow-through bar on the daily chart after yesterday’s big bear breakout. The bulls wanted a strong reversal up to create a good buy signal bar for Monday. They see yesterday as the 2nd leg down from the high. Therefore, today is a High 2 buy signal bar. The bears wanted a big bar closing on its low to confirm yesterday’s big bear breakout.
Since today closed in its middle, it disappointed both the bulls and the bears. This is consistent with the selloff being a bear leg in what will become a trading range over the next few months. IT had a 1 tick bull body, but it is a doji bar. It is therefore a weak buy signal bar and a weak follow-through bar for the bears. This creates confusion, and consequently there is an increased chance of the Emini going sideways for a few days.
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.
