Trump 150 points S&P500 correction will last 2 months
Updated 6:45 a.m.
While today gapped above a minor bear trend line, it failed to gap above yesterday’s high. In addition, it began with 3 small doji bars. This is therefore a weak breakout and trading range price action. Consequently, it lowers the probability of a strong trend day.
Furthermore, it increases the odds that today will be another mostly trading range day. A trading range day has at least one swing up and one swing down. They typically last 2 – 3 hours. The Emini decides in the 1st hour or so if the 1st swing will be up or down. Since the Emini is testing yesterday’s high, there is a slightly higher chance that the 1st swing will be down. The Emini might need more than an hour before it breaks out.
As always, if there is a strong breakout up or down, today could become a strong trend day. At the moment, this is not likely.
Pre-Open market analysis
The Emini had 2 big legs down from Tuesday’s high yesterday, but the bulls were unable to rally strongly. Yesterday was an outside down day. While the odds are that the Emini is in the early part of a 150 point selloff, Tuesday’s rally was strong. Furthermore, August 26 to September 5 has a bullish bias. Therefore the Emini will likely test up a little higher.
The bulls need a strong break above the August 16 major lower high. This is because a bear trend needs a series of major lower highs. Consequently, a strong break above that high would make traders believe that the bears have failed. Hence, they would conclude that the Emini was then either in a trading range or a bull trend.
Tuesday’s high is around a 50% pullback from the last leg down. The bears will try to continue the bear channel. They usually resume selling at around a 50% pullback and the daily moving average. They need to break strongly below the August 21 major higher low. That would be a bear break below a wedge bull flag. Since Tuesday’s rally was strong, that break would trap a lot of bulls. Consequently, it would have at least a 50% chance of a measured move down to the May or March lows.
Overnight Emini Globex trading
The Emini is up 5 points in the Globex market. Since the 2 day selloff was probably a bull flag, today could break above the bear trend line. If so, that could be the start of the week long seasonally bullish trading that often happens around Labor Day. Hence, there is an increased chance of a bull trend day today.
Since the past 2 days have been trading range days, that could continue for another day before the bulls try for their breakout. Less likely, today could break below the 2 day bull flag and become a bear trend day.
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 a pullback to the 20 day exponential moving average after being above it for more than 20 days. Consequently, there is a gap down to the moving average below each of those bars. This is a 20 Gap Bar bull flag.
While there is a parabolic wedge buy climax, the bears have failed to create a reversal down after two legs and 10 bars down. The odds therefore are that the bulls will return and that the bears will give up. However, there is a buy climax is at resistance. Hence, the bears will probably get a minor reversal down soon from either a double top with the July 11 high or a test of the bull trend high. That reversal will probably last at least a couple of months and test at least one of the major higher lows. Since a tight bull channel usually evolves into a trading range rather than reversing into a bear trend, the odds favor a trading range over the next 2 – 3 months.
The bulls had a good buy signal bar 2 days ago, but were unable to create a strong breakout. This is a sign of hesitation. It is therefore consistent with an exhausted bull trend. Consequently, it further increases the odds that the trend will soon evolve into a trading range.
Overnight EURUSD Forex trading
The 4 week tight trading range continued overnight. Day traders are therefore continuing to scalp as they wait for a strong breakout up or down. Since Wednesday is still a buy signal bar, they might get a breakout above Wednesday high today. If not, then next week is likely.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini reversed down from a parabolic rally on the open. But it then reversed up from a parabolic wedge bottom. It closed near the low and was therefore another trading range day.
The Emini had its 3rd consecutive trading range day after Tuesday’s strong reversal up from a wedge bottom. The odds are that the 3 day range is a bull flag. This is especially true because of the seasonally bullish bias from August 26 to September 5. Yet, it is still more likely that a correction down to below 2350 is underway. Therefore, the odds are that any rally next will will form another lower high in an early broad bear channel on the daily chart.
If the bulls break strongly above he August 16 major lower high, then they will probably get a new all-time high. Yet, the odds favor a correction. Therefore the breakout will probably fail
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.
