Emini October wedge top and buy climax, but no trend reversal
Updated 6:42 a.m.
The Emini opened with a big gap down, but then had a big bar with a big tail on top. This is Big Down, Big Up, Big Down, which means Big Confusion. It therefore makes a trading range likely. Furthermore, it reduces the chances of a big trend day up or down. In addition, it increases the chances that any swing up or down will stall or reverse after 2 – 3 hours. This makes a trading range day likely.
The context on the daily, weekly, and monthly charts is good for the bears. Therefore, traders have to be ready to swing trade if the Emini begins to trend down strongly. However, the Emini is now in the middle of its 3 week bull channel. That further increases the chances of a lot of trading range trading today.
Pre-Open market analysis
Yesterday broke above the measured move target on the daily chart. Yet, the breakout was small. It was the 9th day in the wedge bull channel. While a small wedge top is usually a minor reversal, this one has a higher chance of a major reversal. This is because the buy climaxes on the weekly and monthly charts are the biggest in the past 50 years. That increases the chances of a 1 – 3 bar pullback on the monthly chart, which would be a major reversal on the daily chart. There is an increased chance of a reversal within the next couple of weeks.
However, even once the bears get a 100 – 200 point pullback, it will still only be a small bull flag on the monthly chart. There are buyers below.
Overnight Emini Globex trading
The Emini is down 11 points in the Globex market. Since last week was small, there is a chance that the Emini could trade below last week’s low. That would create an outside down week this week and increase the chance that a 100 – 200 point pullback has begun. However, until there is a strong bear breakout with strong follow-through, the odds are that every selloff will be brief. Since the weekly and monthly charts are so extreme, the odds of a successful reversal are going up. Day traders should be ready to swing trade their shorts if today becomes a big bear day.
Big gap down?
A big gap increases the chances of a big trend day. When the gap is down, if there is a trend day, it is slightly more likely to be a bear day. Traders will be ready to swing trade on the open. They will buy for a possible low of the day if there are big bull bars on the open, hoping for a failed break below yesterday’s low and a reversal up.. Likewise, they will sell if there are big bear bars on the open, hoping for a trend from the open bear trend.
When there is a big gap down, instead of an immediate trend up or down, the Emini often goes sideways for an hour or so. The bulls will try to create a wedge bottom or a double bottom, and the bears will try to create a double top or wedge top near the moving average.
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 EURUSD daily Forex chart is starting a 2nd leg up after reversing up from a double bottom. Since it is in a 3 month trading range, rallies and selloffs are likely to reverse. This rally will probably go above last week’s lower high. If it reverses from above that high, the bears will see a wedge rally that is also a right shoulder of a head and shoulders top.
The EURUSD weekly Forex chart has been sideways for 3 months. It go close to its 20 week exponential moving average so that it probably cannot escape the gravitational pull of that support. As a result, the 2 week rally will probably stall within a couple of weeks and the weekly chart will then go sideways to down to the average. Since the weekly bull trend is strong, the bulls will buy at that support.
This is true even though falling to the average would trigger a sell signal on the daily chart by breaking below a head and shoulders top. A major top only has a 40% chance of leading to a reversal, and that is consistent with the weekly bulls buying the selloff.
Overnight EURUSD Forex trading
The 5 minute chart continued its 2 day rally by trending up 70 pips over the past 5 hours. However, the rally lacked consecutive big bull trend bars. It is therefore likely a bull leg in the 3 week trading range. The odds are that it will reverse down once it get to around or just above last week’s high.
The 3 week trading range would then be a wedge top. It is within a 3 month head and shoulders top. The odds are that both trading ranges will continue for at least another 2 – 4 weeks. Consequently, day traders will look for 2 – 4 day moves up and down.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini gapped down and sold off, but reversed up to above yesterday’s low.
After an early selloff, the Emini reversed up to above yesterday’s low. Today is therefore a buy signal bar for tomorrow. Yet, the Emini is still in its 9 day tight trading range. Therefore the odds are against a big rally tomorrow. The bears want a double top with the all-time high. The odds are that the Emini will enter a trading range lasting at least 2 hours and beginning by the end of the 2nd hour. However, there is a 25% chance of another strong bull trend day.
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.
