Emini follow-through selling after wedge lower high major trend reversal
Updated 6:42 a.m.
The bears broke below yesterday’s low on the open. Yet, the odds favor a trading range that starts within 2 hours. There is only a 25% chance of another strong bear trend day. Consequently, this early selloff will probably reverse up within an hour or so.
That does not mean there would be a bull trend. More likely, a strong bear trend becomes a trading range. Since the selloff was huge, the legs in the range can also be very big. But, an early reversal up and then a trading range is the most likely outcome this morning. The 1st target for any reversal up is that top of yesterday’s final plunge, which is around 2736.
If there is a continued bear trend, the bears will swing trade all day. However, most will wait to sell pullbacks after yesterday’s sell climax.
Pre-Open market analysis
The 3 week rally has been strong. However, Tuesday was a big bear bar on the daily chart and yesterday was a 2nd big bear bar. Therefore, it confirmed the reversal and increased the odds of a couple legs down over the next 2 weeks.
Overnight Emini Globex trading
The Emini is up 1 point in the Globex market. After yesterday’s sell climax, there is a 75% chance of at least 2 hours of sideways to up trading that starts by the end of the 2nd hour.
This week is the entry bar for the bulls on the weekly chart. Their minimum goal is a bull body on the weekly chart. Consequently, they need tomorrow to close above the 2759.50 open of the week, which is just above yesterday’s sell climax high.
That is therefore an important magnet. While it is 40 points away, this 2 day selloff on the daily chart is probably a bear leg in a trading range. Consequently, the odds are the bears will be disappointed. One thing that would disappoint them is if this week has a bull body, or only a small bear body. Since a trading range is likely on the daily chart, there is about a 50% chance of a 40 point rally by tomorrow’s close.
Alternatively, if this 2 day selloff is a resumption of a bear trend, this week will probably be a bear trend bar on the weekly chart. That means that tomorrow will close near the low of the week. Furthermore, today and tomorrow could be additional big bear trend days.
While this is unlikely, day traders will sell aggressively and hold for a swing down if there is a continued strong trend. A 40 point reversal up by tomorrow’s close is more likely.
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 100 pip bounce beginning this week
The EURUSD daily Forex chart is continuing its weak breakout below the neck line of a 2 month double top. Unless the bear bars get bigger soon, the odds favor a 100 – 200 pip bounce beginning within a week.
The EURUSD daily Forex chart broke below the February 9 low. That is the neck line of a 2 month double top on the daily chart. Yesterday was a bear bar, but it was not big. Therefore, there was not strong selling on the breakout. Hence, this is a weak breakout.
Today is the follow-through day. The odds of a 300 pip measured move down go up if today closes below its open. They go up more if today is a big bear trend day. Finally, the odds of a reversal back up go up if today is a bull trend day. That is especially true if today is a strong bull reversal bar on the daily chart.
Since the bars have been small during the 2 week selloff, there is not a strong sense that the price is terribly wrong. There is no urgency to move the market down to a more fair price. Consequently, the price is probably about right. That is a sign of trading range thinking. It therefore reduces the odds of a 300 pip measured move down.
Legs in trading ranges usually fall below support before reversing up. The current selloff is searching for a bottom. The bears do not want a reversal up until the selloff has fallen below many support levels. That would increase the odds that the selloff is the start of a bear trend and not a bear leg in a big trading range. Bear trends sometimes lack consecutive big bear trend bars. The strongest bears trends usually have many big bear trend bars.
Bear trend or bear leg in trading range?
So far, this selloff has had many small bars. That makes it more likely a bear leg in a trading range. Therefore, traders are looking for a bottom that will lead to a 5 – 10 bar bull leg in the range. The minimum goal would be the top of the most recent major lower high. Currently, that is the top of last week’s 4 day bear flag. That is about 100 pips above today’s low.
If the bulls get a reversal this week, the rally will probably go above that resistance. Therefore, the odds are they will get at least a 150 pip bounce. However, they need a bottom. That would be either a strong bull reversal day or a micro double bottom. Since there is no sign of either, the odds continue to favor at least slightly lower prices.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart has sold off in a tight bear channel for 2 days. Most bear channels have bull breakouts within 3 days. The channel then evolves into a trading range. From there, the bears want a bear flag and then a resumption of the bear trend. But, the bulls want a double bottom and a rally. The odds are that the 5 minute chart will begin to go sideways today or tomorrow.
The bears will continue to sell rallies for swing trades and scalps until there is a strong reversal up. Since pullbacks from new lows on the 5 minute chart go above the breakout points, the channel is a Stairs pattern. That has allowed day trading bulls to make money buying below the last low for a scalp up. They will continue to scalp until there is a strong breakout up or down. If the breakout is up, they will swing trade, expecting at least a 100 – 150 pip rally up from the low.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
After trading sideways for the 1st half of the day, the Emini collapsed in the 2nd half. The bears took some profits late in the day.
Today was the 3rd big bear trend bar on the daily chart. Furthermore, today traded below last week’s low. This week is now an outside down bar on the weekly chart. Yet, the weekly and monthly charts are still in bull trends.
The daily chart has a lower high major trend reversal, but it is still more likely in a trading range than a bear trend. Because it sold off from a wedge this week, the odds are that it will have a 2nd leg down. Therefore, the bears will sell the first rally, which will probably begin within a couple of days.
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.
