Emini trend reversal after failed new high breakout
Updated 6:52 a.m.
The Emini traded below last week’s low. This week is therefore an outside down week. The bears need the week to close far below last week’s low. The bulls want the opposite.
The Emini had a failed reversal up on the open. It reversed up from below yesterday’s low, last week’s low, and a break below the bear channel. While the bears got consecutive bear bars, the 2nd bar had a big tail. That, combined with the big bull bar on the open, increase the chances for a trading range open. The bears want a 2nd reversal up and an early low of the day. The bulls want any rally to form a double top and high of the day.
This early buying reduces the chances of a big bear day. The odds are that the Emini will probably form an early trading range. Then, it will decide between trend resumption down and trend reversal up. The legs up and down will probably be big enough for traders to swing trade.
Pre-Open market analysis
Yesterday rallied strongly to a new all-time high. Yet, it reversed down deeply to a new low of the day. Yesterday is a sell signal bar. In addition, the context is good for a reversal on the daily and weekly charts. If the bears get strong follow-through selling over the next few days, the odds will favor a test down to the March or May low over the next couple of months.
Overnight Emini Globex trading
The Emini is down 8 points in the Globex market. It therefore probably will gap down. Because yesterday was a sell climax day, there is only a 25% chance of a strong bear trend day today. While there is a 50% chance of follow-through selling in the 1st 2 hours, there is a 75% chance of at least 2 hours of sideways to up trading that begins by the end of the 2nd hour.
While a gap down is bearish, the Emini will still open within its month=long range. The bears need a strong break below the range before traders will believe that a correction is underway.
Since most breakouts fail, the probability still is that this one will as well. The odds favor a continued trading range. This is true even though the odds favor a 2 – 3 month correction. Picking the exact reversal down attempt that succeeds, before there is a strong bear breakout, is a low probability bet. Look at the chart over the past 4 months. There have been many strong bear breakouts, yet each failed. The bears need to begin to create consecutive big bear bars on the daily chart. Today is their chance.
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 240 minute EURUSD Forex chart is at the neck line of a head and shoulders top. The bulls see the 2 legs down from the high as a wedge bull flag. Traders are deciding between a measured move down and trend resumption up.
The monthly EURUSD Forex market is testing the 2015 breakout point at the bottom of a 10 year trading range. The rally is strong enough so that any reversal down from here will probably be minor. Hence, a bull flag on the monthly chart is more likely than a bear trend over the next several months.
The weekly chart yesterday traded below last week’s low. This triggered a sell signal. This week is the entry bar, and so far it is small. Furthermore, the bull channel since the April low is tight. Therefore, if there is a reversal down, it would more likely be just a bear leg in a trading range than the start of a bear trend.
Head and Shoulders Top
The 240 minute chart reversed down strongly last week. The minimum target was a 2nd leg down. Yesterday met that minimum objective. The chart is now at the bottom of an 8 day trading range. The bulls see a wedge bull flag pullback over the past 7 days. They therefore want a rally above the bear trend line and a resumption of the bull trend.
Yet, the bears see a head and shoulders top. They want a strong break below the neck line and then a measured move down. That would be around the bottom of the wedge rally that began on July 26.
When there is a major top setup like this, the initial sell has a 40% chance of leading to a swing down. The bears got enough of a swing down yesterday to increase the probability of a measured move down to 50%. The 240 minute chart is therefore in breakout mode. There is therefore about a 50% chance of either bull trend resumption or a bear breakout.
Overnight EURUSD Forex trading
The 5 minute chart traded sideways overnight. Since it is at the bottom of 8 day trading range, there is an increased chance of a bear breakout or a resumption of the bull trend. Until there is the start of a strong breakout, day traders will scalp. Bear swing traders can still be holding shorts with a stop above the August high. Since the market is now at the bottom of an 8 day trading range, swing bulls will begin to buy, or they will buy after a strong break above the 5 day bear trend line.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini reversed up from below yesterday’s low and last week’s low from a double bottom higher low major trend reversal.
The Emini was in a trading range today that rallied into the close. The bears need follow-through selling after yesterday’s reversal down from the all-time high. They failed. However, the bulls need their needed strong reversal up at the end of the day. Today is a buy signal bar on the daily chart.
The Emini has been in a trading range for a month. Therefore Monday’s reversal down did not yet do enough to make traders believe that the bears are in control.
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.
