Posted 7:02 a.m.
The Emini had an expanding triangle bottom and then a higher low major trend reversal at the end of yesterday. The bulls tried for an early reversal up from another higher low today, but the rally failed at the moving average. It then had an Opening Reversal down for a possible high of the day.
There have been many big bars in the last 30 bars, which increases the chances of a swing up or down. The bears want a break below the April 2026.00 low, which is only a couple points below. The bulls want a rally to the 60 minute moving average.
At the moment, the Emini is Always In Short and it fell below the April low. This triggered the sell signal on the monthly chart. There is often buying immediately after a higher time frame sell signal triggers, but the early selling today has been strong enough so that the 1st reversal up will probably be sold. The bulls will probably need at least a micro double bottom or a major trend reversal, which means that the Emini will probably be in a trading range of bear channel for the next hour.
If the bulls reverse up sharply, traders will change their minds. This is unlikely for at least an hour or more, and possibly all day.
Pre-Open Market Analysis
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The Emini is still being weighed down by the April low of 2026.00. April is a sell signal bar on the monthly chart for a failed breakout above the top of a 2 year trading range. Although there have been many strong bull trend days in May, there has not been follow-through buying. The Emini keeps getting pulled down by the magnet of the April low. The longer it stays so close, the more likely it will fall below.
The bulls are confident that February and March were strongly bullish on the weekly and monthly charts. This strength reduces the chances of a trend reversal down if May falls below the April low and triggers the sell signal.
The daily chart has a Lower High Major Trend Reversal (Head and Shoulders top). However, the right shoulder, which formed with the May 11 lower high, only lasted 4 days. That is usually not enough bars for a major reversal. Instead, a selloff from a minor reversal typically only results in a bear leg in a trading range.
Because the daily, weekly, and monthly charts all are likely to find buyers below the April low, the bears are likely to lose. Whenever there is a low probability event, like a major trend reversal coming from a minor sell signal, traders often get trapped. They expect the bear breakout below the April 7 low (the April low) to be brief, to fail, and to reverse up. If too many traders share this obvious belief, there is a possible Pain Trade. This is a low probability event that continues much longer than what appears likely.
A Pain Trade in this case would be a big selloff below the April low, like one that reverses most or all of the March rally, which began at 1911.50. Remember, this is unlikely, but if the Emini relentlessly sells off below the April low, it might quickly get there, even by the end of May. If this begins to happen, do not look for a failed bear breakout to buy. Instead, only look to sell as long as the momentum down continues.
The selloff from the April 20 high has been weak and therefore looks more like a leg in a trading range than the start of a bear trend. The Emini has had bad follow-through selling and it is still above the bottom of the 2 month range. However, it is in a broad bear channel on the 60 and 240 minute charts, and it could easily change character from a bear leg in a trading range to a bear leg in a bear trend. It needs a strong breakout below the 2026.00 April low.
The bulls are counting on the inertia of a trading range. Trading ranges resist breakouts up and down, no matter how strong the attempts are. Yes, the bulls have probability on their side on the daily chart, but they are unable to lift the Emini far above that sell signal (1 tick below the April low). There is about a 50% chance of the bear breakout occurring within by the end of May. Even if it does not and May becomes an inside bar on the Monthly chart, there would be at least a 50% chance of June falling below May and possibly April, which would also trigger the monthly sell signal. It is impossible to know if it will be a Black Swan breakout that falls far. However, it is more likely to be a limited bear breakout that soon fails, and is followed by a reversal back up to the top of the trading range (the all-time high).
On the 5 minute chart, the bulls want a double bottom around yesterday’s low or around its higher low, which would form a double bottom higher low major trend reversal. The bears correctly believe that the selloff yesterday was so strong that there will be at least a small 2nd leg down. If there is a Leg 1 = Leg 2 measured move down, that 2nd leg will probably trigger the sell signal on the monthly chart. That 2nd leg down might not begin for as long as 2 – 3 days.
On the 5 minute chart, there has been very little follow-through from the prior’s day trading in over a month. Day traders are trading what they see as the day unfolds. Almost every day has had good swings up, down, or both, and traders will correctly assume that this will continue until it has clearly stopped.
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The EURUSD 240 minute chart is forming gaps and negative gaps (slight overlap). Although this is consecutive sell climaxes, it is a sign of strong bears. It usually continues at least until it reaches a measured move down.
The daily EURUSD Forex chart finally broke below the April 25 low of 1.1214 overnight. That was the bottom of the final rally. The bulls needed higher lows to be able to argue that the bull trend from March 10 was still intact. A break below a major higher low (one that leads to a strong rally and a new high in the bull channel), like the April 25 low, makes most traders believe that the bull channel and therefore bull trend has ended. They need more information before they can conclude that a bear trend (lower highs and lows) has begun, or whether the EURUSD Forex chart has entered a trading range. It clearly is in a trading range since the March 28 rally, but it might also now be in a bear trend.
The May 3 high was also a wedge top on the weekly chart, and it formed below the top of the yearlong trading range. The selling has not been especially strong on the weekly chart over the past 2 weeks, and most trends begin with a breakout (look at the rally from the December low). However, with yesterday’s selloff, the bears are looking like they are more in control on the weekly chart.
Many trends also begin with a series of 3 or 4 consecutive trend bars. The past 2 weeks closed near their lows. Although there are still 2 days left to this week, it is currently near its low. If it closes on its low on Friday, traders will believe that there will be at least one more small leg down on the weekly chart. They will begin to sell weekly closes or above the high of the prior week, betting that the 1st reversal up will be sold, and that there will be at least one more small leg down. There might also be a trend down as well.
The bulls need this week to close well above its low and above the April 25 low. If they can accomplish that, the odds are that the 7 week trading range will continue. If they fail, the odds are that the EURUSD Forex chart will probe down to other support levels, like a measured move down to around 1.1100 from the May 11 measuring gap on the daily chart.
The 240 minute chart is beginning to accelerate down. It is now forming gaps. The early ones are typically measuring gaps. Once it forms 2 – 4 gaps, traders begin to see each new bear breakout as a sell climax. When a chart has a series of consecutive sell climaxes, the odds of a sharp reversal up increase. They begin to look for evidence that the most recent gap will close and therefore be an exhaustion gap that leads to a TBTL Ten Bar Two Leg pullback. The odds of this are greater if the most recent gap is big, at a measured move down from an earlier gap and comes from a climax that is bigger than the prior sell climaxes. There is not enough evidence yet to support a strong reversal up, and the bears are continuing to sell. Without these signs of a base, most reversals will be limited to about 50 pips.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini fell below the April low, triggering a sell signal on the monthly chart. It then rallied in a broad bull channel.
Although the Emini triggered the monthly sell signal by falling below the April low, the Emini then reversed up. On the daily chart, today is now a buy signal bar for tomorrow. The body is small, but the context is good for the bulls. Today is a failed breakout below the bottom of a 2 month trading range and reversed up.
The bears will try to get back below the April low. The bulls will try to reverse up strongly and possibly get above the April high by the end of May creating an outside up and a new all-time high. The Emini has had weak follow-through for 2 months so the odds are that the bulls and bears will be disappointed, and the Emini will continue sideways in its 2 month range.
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, and a 2 day free trial is available.
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.
Hi Al,
In bear spike and channel pattern, when bulls break above the channel to target the start of bear channel then what takes preference (test of top of bear channel or bottom of bull channel which broke above bear channel). e.g. On Gold daily chart, bulls broke above bear spike and channel but it formed wedge top and bears are currently in second leg down (but not sure if it is second leg within first leg) and have completed leg1 = leg2 target around 1244 as well. So, do we now trade it as a trading range between 1303-1244 as it has almost retraced to the bottom of last bull spike or do we still expect it to continue up aiming for 1480 (start of bear channel)?
Many Thanks
Saad
That’s easy. The less clear the picture, the more certain traders are that the mkt will not go too far up or down. They B L, S H, and scalp, which creates a TR.