Emini has weak Low 2 bear flag just above February low
Updated 6:45 a.m.
The Emini opened with a bull reversal bar back in Thursday triangle. The 2nd bar was also a bull bar, but it was small and therefore weak. The Emini is also at the 60 minute EMA and around a 50% pullback from Thursday’s rally. The Emini is Always In Long, and this is a reasonable buy setup for a possible low of the day.
Since the bear channel is tight, this 1st reversal up will probably be minor. There will probably be sellers around the EMA. The bulls will likely need at least a micro double bottom before traders believe that a swing up is underway.
The bears want this opening rally to be a bear flag. However, they should not have allowed the 2 bull bars to form at support. Therefore, they need a strong break below the 1st bar before traders believe that the bear trend from Thursday’s high will continue. At the moment, the Emini will probably go sideways in Thursday’s trading range for an hour or more before deciding on the direction of the 1st swing.
Pre-Open market analysis
March was the 2nd consecutive bear bar on the monthly chart after a 15 month bull micro channel. A pullback from a micro channel usually lasts 1 – 3 months. Therefore, April will probably be the final month before the bulls start to rally to a new high.
However, the monthly and weekly charts had never been this overbought in the 100 year history of the stock market. Therefore, there is an increased chance that the pullback could last many more months. There is only a 20% chance a strong bull trend becoming a bear trend without at least a small double top. Consequently, the downside is not great on the monthly chart. But, if April is a big down month, the correction could be 20% or more and test the 20 month EMA.
Since March closed near its low, April will probably trade below the 2586.00 March low this week. The reaction to that breakout will be important. If there is a strong reversal up, the bull trend will probably be resuming. If the Emini sells off, it will probably fall below the February low and test the 2400 area.
On the daily chart, Thursday is a Low 2 sell signal bar. Since it had a bull body, it is a low probability sell signal.
Overnight Emini Globex trading
The Emini is down 11 points in the Globex session. While Thursday was a bull day, the 5 minute chart has been in a tight trading range for 5 days. There is no sign of a breakout. The bears want the range to create a Low 2 bear flag on the daily chart. If today is not a strong bull trend day, it will be a sell signal bar for the bears. This is especially true if it is a bear bar closing on its low on the daily chart.
The bulls need a strong rally today. If so, today Thursday will then probably be the start of a rally from a micro double bottom and a higher low major trend reversal on the daily chart. The odds are against this. However, after many big up and down days, traders are willing to take swing trades in either direction.
Thursday’s setups
Here are several reasonable stop entry setups from last Thursday (market closed Friday). I sometimes also show limit order entries and entries on the close of bars.
EURUSD 3 day tight trading range in the middle of a 3 month trading range
Today is the 3rd small day in the middle of a 3 month trading range on the EURUSD daily Forex chart. There is no sign of an impending move up or down..
The EURUSD daily chart is in the middle of a 3 month trading range. While there is a small double bottom with a bear bar from last week, today’s reversal up is small. This means today will probably be the 3rd consecutive small day.
The EURUSD daily Forex chart has been in a trading range for 3 months. When markets are in trading ranges, they spend most of the time in the middle. That is the case now. When the market starts to go up, bulls take profits, correctly believing a breakout is unlikely. The bears start to scale into shorts. The result is a reversal down. In the lower half, bears take profits and the bulls begin to buy.
The EURUSD daily chart formed a small double bottom with the March 22 low. Today is the breakout above Friday’s buy signal bar. However, today so far is a small day. It is therefore a weak breakout. Unless the bulls get a much stronger rally today, the 3 day tight trading range will probably continue.
The bears do not want today to become a big bull trend day. They will probably get their wish. They then will see today as a failed breakout and therefore a sell signal bar for tomorrow.
But, it would be a sell signal in the middle of a 3 month range. All stop entry signals in the middle of a trading range are low probability bets. Most traders want to see a big trend bar up or down before looking for the next 2 – 5 day leg.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart has been in a 40 pip trading range for 3 days. Consequently, day traders have been scalping. They are looking for reversals, and for pullbacks from the 1st leg after a reversal. They are also selling above prior highs and buying below lows.
Since trading ranges usually test breakout points, the bull should be able to test above the March 27 low. That is the bottom of the bear reversal bar on the daily chart that led to a 3 day selloff. Consequently, 1.2347 is a magnet above. The market got to within 3 pips today and is turning down. However, it will remain a magnet today unless the reversal down over the past hour has strong follow-through selling.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini broke below the March low and traded down in a tight bear channel.
Today was a strong bear trend day. By trading below the March low, the Emini triggered a sell signal on the monthly chart. The next target is the February low. After that, the bears will try to test below the 20 month EMA.
The bulls will try for a reversal up this week. They want April to be a reversal bar on the monthly chart, even if the Emini sells off for the first couple of weeks.
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.
