Dow 20,000 big round number psychological resistance
Updated 7:04 a.m.
The Emini reversed up and then down on the open. A Big Up Big Down move is trading range price action. Yesterday was a bear channel, hence a bull flag. A channel usually evolves into a trading range. The bulls see a small higher low major trend reversal. Yet, the bears see a moving average gap bar sell setup. When there are both buy and sell signals, the odds are that the market is in a trading range.
While the odds also favor a couple hours of sideways to up trading today, the early trading has trading range price action. Furthermore, yesterday’s strong selloff makes a strong bull trend day unlikely. In addition, stalling at the bottom of a 10 day trading range makes a strong bear trend day unlikely. Most likely, today will have swings up and down that lack follow-through and disappoint bulls and bears. The odds are that it will be mostly a trading range day.
Pre-Open Market Analysis
The Dow again tried to break above the 20,000 big round number yesterday, but failed. Furthermore, this is the 3rd time that the market has failed there. In addition, the reversal down was strong. While it is still possible to reach the target this year, it is now unlikely. Hence, yesterday might be a give up bar on the daily chart. If the bulls are giving up, they might wait a couple of weeks before trying again.
The bears need follow-through selling today or tomorrow to convince traders that a 2 week pullback is underway. The bulls today will try to reverse yesterday’s selling, hoping to close the year above Dow 20,000. Yet the odds are now against them.
How far down will the market fall? It is possible that this is the start of a selloff to test the breakout point at the August high. The bond market bears might be starting to take profits. A modest bond rally would increase the odds of a stock market pullback over the next several weeks.
Overnight Emini Globex trading
While there was some follow-through selling overnight, the Emini reversed up and is up 1 point. Since yesterday was a sell climax, there is a 50% chance of follow-through selling in the 1st 2 hours. Yet, there is only a 25% chance of a strong bear trend day. In addition, there is a 75% chance of at least a couple of hours of sideways to up trading that begins by the end of the 2nd hour.
EURUSD Forex Market Trading Strategies
The 240 minute EURUSD Forex chart overnight reversed up sharply after yesterday’s strong selloff. The rally created a higher low major trend reversal (HL MTR). Since there was a left shoulder 2 weeks ago, the bottom is also a head and shoulders bottom (HSB). Because the rally stalled at yesterday’s high, the bears have a double top. Since the trading range has lasted more than 20 bars, the probability for the bulls and bears is now equal.
While the EURUSD sold off strongly yesterday, the bulls are hoping that the selloff is a bear trap. They will therefore try to create a reversal up today or tomorrow. If so, that would create a higher low major trend reversal on the 60 minute chart. Furthermore, if the reversal is big enough, it could eventually trigger a lower low major trend reversal on the weekly chart.
Because yesterday’s selling was so strong, the odds are that the bulls will need to create a base for a day or two before they have a chance of a reversal.
The EURUSD is at the bottom of a 10 day trading range. In addition, it is at the bottom of a 1 year trading range. The bears need a strong breakout below this support level to reach the magnet of the 1.0000 big round number. While the odds still favor lower prices, the bears need to break below support. If this trading range lasts 20 or more bars, the odds of a bull breakout above the bear flag will be the sames as for a bear breakout below.
Overnight EURUSD Forex trading
Because the EURUSD Forex market completely reversed yesterday’s strong selloff, the bulls have created a higher low major trend reversal. Because the rally stalled at yesterday’s high, it also created a double top.
Since there is a trading range, there is always a good buy and a good sell setup. There is an equal chance of a bull or bear breakout. While one side will win, there is only a 40% chance that the breakout up or down will ultimately reach a measured move target. There is at least a 20% chance that any strong breakout will reverse before reaching its target.
While the overnight rally was strong, it stopped at the top of the 2 week trading range and has been sideways for 6 hours. Furthermore, it is back in the trading range of the past few days. In addition, this is a holiday week, which has less chance of a breakout. As a result, the EURUSD most likely will be mostly sideways today.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini was in a trading range today. It rallied from a higher low major trend reversal. Yet, became quiet at the end of the day.
The Emini was in a trading range today. Because it pulled back to the daily moving average after being above it for 2 months, today was a 20 gap bar buy setup. Yet, it is still in its trading range. Because the Dow is so close to the 20,000 big round number, the bulls will try to get tomorrow to close above it. Hence, that would be a yearly (and monthly) close above a psychological resistance level.
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.
