Emini island top and weekly sell signal before FOMC
Updated 6:45 a.m.
The Emini opened with a continuation of yesterday’s strong rally, but had a bear bar on the 2nd bar. The rally is a parabolic wedge, While the Emini is Always In Long, this is a buy climax. Therefore, many bulls will wait for a pullback close to the moving average before they will be willing to hold for a swing trade. Less likely, they will get a strong trend from the open bull trend. With tomorrow’s uncertainty, the odds are that today will not be a strong bull trend day. At the moment, it will probably be sideways to up.
A tight bull channel only has a 20% chance of immediately reversing into a bear trend without 1st having at least a micro double top or trading range. Therefore, even if the bears get a strong selloff in the 1st hour, the odds are that it will be a bear leg in a trading range and not the start of a bear trend. The best the bears will probably get today is a trading range day.
Pre-Open market analysis
By trading below last week’s low, yesterday triggered a weekly sell signal. Furthermore, by gapping down, yesterday created a 6 day island top on the daily chart. Finally, yesterday was a big bear trend day.
Since the daily chart is in a trading range, an island top is not a strong sign of lower prices. In fact, the odds are that the weekly gap down will close this week, even with the uncertainty of tomorrow’s FOMC report. In addition, there is a 40% chance of a gap up within a couple of weeks that will create an island bottom on the daily chart with today’s gap down.
While yesterday was a big bear day, it might have been a sell vacuum test of the 2700 Big Round Number and the March 7 higher low. This is more likely because there was a late rally that retraced half of the selloff. In addition, it was the 6th consecutive bear day. That has not happened in over a year. Therefore, the odds favor a bull bar on the daily chart today.
The bears want follow-through today to prove that the 5 day selloff is a bear trend and not a pullback in a rally. But, the Emini might wait for Wednesday’s FOMC report, which can lead to a sharp selloff or a strong reversal up.
Overnight Emini Globex trading
The Emini is up 3 points in the Globex market. Since 6 consecutive bear days rarely happens, the odds are that today will close above the open. Hence, if today is within about 5 points of the open in the final hour, it will probably get drawn there for a test. Unlike Friday’s test, today will probably close above the open.
Yesterday’s gap down will probably close within a couple of week’s. It might close after tomorrow’s FOMC announcement. As strong as the bears were yesterday, the selloff was still in the middle of a 2 month trading range. Also, the odds are that April will test the all-time high. Therefore, the bears need strong follow-through selling this week before traders believe that the selloff is the start of a test down to the February low. More likely, the Emini will reverse up within a couple of weeks and begin a move up to the all-time high.
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 sideways ahead of tomorrow’s FOMC announcement
The EURUSD daily Forex chart had a High 2 bull flag yesterday, but today reversed yesterday’s bull body. It is in the middle of a 3 month trading range with no sign of a breakout.
The EURUSD daily Forex chart is at the apex of a triangle in the middle of a 3 month trading range. I have said for a week that it would probably go sideways ahead of tomorrow’s 11 a.m. FOMC announcement. Nothing is different. While today so far has reversed yesterday’s rally, the odds are against a big move from here until tomorrow’s announcement.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart sold off 70 pips over the past 4 hours. It therefore reversed most of yesterday’s rally. However, not all. It is still above yesterday’s low and below yesterday’s high, and therefore today is an inside day. Even if it trades below yesterday’s low today, the 3 day tight trading range would probably prevent it from trading much below.
The momentum down is good for the bears. Traders are selling and holding for a swing down to yesterday’s low, which is 25 pips below. The selloff will probably find support there. If so, the bears will start to sell rallies instead of at the market. The 1st reversal up will probably be minor. Hence, traders will sell the 1st 20 – 40 pip rally today.
Over the next 2 hours, the bears will probably begin to take profits at new lows. In addition, the bulls will look for a buy setup for a 20 – 30 pip bounce.
The 4 hour selloff has been strong. A bear trend only rarely reverses into a bull trend without first evolving into at least a 2 hour trading range. Consequently, the odds are that the 5 minute chart will begin to go sideways within the next 2 hours. Since all financial markets will probably be quiet ahead of tomorrow’s FOMC announcement, today’s strong selloff will probably lead to a trading range for the rest of the day.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Toady was a trading range day. After 6 consecutive bear days, today closed above the open, ending the streak.
Today was a trading range day and an inside day. By closing above the open, the day had a bull body on the daily chart. This ended the streak of 6 consecutive bear days. That is the longest streak in about 1 1/2 years. Tomorrow will likely be neutral ahead of the 11 a.m. FOMC announcement.
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.
