Emini test of wedge top before Trump tax reform vote
Updated 6:44 a.m.
The Emini gapped below Friday’s low, but the 1st 2 bars were bull bars. This is a small Big Down, Big Up pattern, and it makes an early trading range likely. The bulls want a failed breakout below yesterday’s low. If there is a new low of the day, the bulls will try for a double bottom. This would create a 2nd failed breakout below yesterday’s low. It would therefore be a higher probability buy signal.
The bears want an Opening Reversal down from around the moving average. They are looking for either a double top or wedge top bear flag, and they want a strong sell signal bar.
At the moment, the Emini is Always In Long and reversing up from below yesterday’s low. However, they need bigger bars if they are to get a trend from the open bull trend. A trading range open is more likely.
Pre-Open market analysis
Friday was an inside day after Thursday’s big bull reversal day. Since all higher time frames are in bull trends, the odds continue to favor new highs. Yet, since the climaxes are extreme, the odds also make a 5% pullback likely to begin soon. There is a wedge top on the daily chart. If the bulls break above, they will have a 40% chance of a 40 point measured move up. If the bears break below the October 25 low around 2540, they will probably begin a 5% correction to below 2500.
Overnight Emini Globex trading
The Emini is down 7 points in the Globex market. The wedge top triggered when Thursday traded below Wednesday’s low. Yet, Thursday and Friday were bull bars and neither fell below the October 25 bottom of the wedge. In addition, all strong selloffs over the past 6 months reversed up on the day they began or on the next day. Consequently, until there are consecutive big bear bars, the odds still favor higher prices. However, since the Emini has never been this overbought, traders have to be ready for a very strong reversal down beginning any day.
Today will probably gap down. There is a 25% chance of either a trend from the open bull or bear trend. There is a 75% chance of a trading range over the 1st hour or two. If so, the bulls will try to create a reversal up from a double or wedge bottom. Additionally, the bears will try to create a double top or wedge bear flag just below the moving average.
Friday’s setups
Here are several reasonable stop entry setups from Friday. I sometimes also show limit order entries and entries on the close of bars.
EURUSD Forex market trading strategies
The weekly EURUSD Forex chart had a bull reversal bar last week at the 20 week exponential moving average (EMA) and the top of the 2 year trading range. The 9 week pullback is a wedge bull flag. Furthermore, the 3 week micro double bottom and bull trend bar make it likely that the bear break below the double bottom will fail.
The selloff from the September high was likely to be minor because the 6 month rally was in a tight bull channel. Similarly, the current attempt to reverse up will likely be minor because the 9 week bear channel has been tight. As a result, the odds favor a trading range that will last at least another 1 – 2 months.
The daily chart (not shown) of the EURUSD Forex market has a head and shoulders top. But, most tops fail. The weekly chart has a buy signal at the 20 week EMA and the top of a 2 year trading range. Yet, the 9 week selloff has been in a tight bear channel.
Is this the 1st of 2 legs sideways to down?
Since the 6 month rally was climactic, the odds favor a pullback that has a couple of legs down. The current 9 week selloff has 3 legs. However, it is in a tight bear channel, and 9 weeks is probably not enough of a correction after a rally that has lasted about 11 months. Consequently, the 9 week selloff will probably be the 1st of a larger 2 legged correction.
Hence, a rally over the next few weeks will probably form a lower high. Then, the EURUSD chart will likely have a 2nd leg sideways to down. If that leg is down, it will probably not fall much below the 1.1300 support zone (blue box in the chart) at the top of the 2 year trading range.
Overnight EURUSD Forex trading
Last week was a buy signal bar at support on the weekly chart. Therefore, this week will probably trade above last week’s high. The market needs to find out if there are more buyers or sellers there. Will the 9 week selloff begin to reverse up or continue down? Since the EURUSD market has been sideways for 4 months, the odds are that it will continue sideways. Since trading ranges disappoint bulls and bears, the bulls should trigger the buy this week, but be disappointed by a lack of a strong reversal up. The bears have been disappointed by the lack of follow-through selling after the breakout below the 4 month head and shoulders top.
A rally above last week’s high triggers a weekly buy signal. That high is only 3 pips above today’s high. Today or sometime this week, the bulls should trigger the buy. There is therefore a 30% chance of a very strong rally this week. More likely, there will not be a strong breakout and the 3 week trading range will continue.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini reversed up strongly from below yesterday’s high, forming an outside up day. There was late profit taking after a failed breakout above a tight bull channel.
While today was an outside up day from a test of the 20 day EMA, it is still in a 4 week tight range. Since it keeps reversing up strongly from the the 20 day EMA, the odds favor at least slightly higher prices. Yet, the buy climaxes on the daily, weekly, and monthly charts are extreme. Therefore the odds favor a 5% correction beginning by the end of the year.
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.
