Emini parabolic buy climax and possible island top, but no reversal yet
Updated 6:50 a.m.
The Emini had a small gap up, but it closed on the open. The bears began with 3 consecutive bear bars. This created a Big Up, Big Down, Big Confusion pattern with Friday’s close and it makes a trading range likely for the 1st hour or 2. The 3 bear bars also make a strong bull trend day unlikely. Since Thursday and Friday were in tight bull channels, a bear trend is unlikely without the bears first getting a trading range. Therefore, this is probably going to be a trading range open.
Furthermore, it will probably not be a strong bull day. Since most selloffs over the past several months ended up as bear legs in trading range days, if the bears get a selloff, it will probably lead to a 2 – 4 hour reversal. However, the odds are that the reversal will not go far above the open, if it gets above the open at all.
Pre-Open market analysis
Because the Emini gapped up on Friday and it closed on its high, today could gap up. This would create a gap on the weekly chart, which is rare.
The Emini has been accelerating up, despite buy climaxes on the weekly and monthly charts. While there is no top yet, the buy climaxes are the biggest in the history of the Emini. That makes a correction likely before the rally continues much higher. While traders should be prepared to sell after they see a strong reversal down, there is no top yet. Therefore the odds favor higher prices.
Since Friday gapped up, there is an increased risk of a gap down this week. That could create an island top. But, without a strong reversal down, the selloff would probably be minor.
Overnight Emini Globex trading
The Emini is up 2 points in the Globex market. It might therefore form a gap up on the weekly chart. The Thursday and Friday rallies were strong enough to make a bear trend unlikely today. However, the 2 day tight bull channel is extreme and therefore unsustainable. Consequently, today will probably have at least a couple of hours of sideways to down trading. Since Friday finished strong, there is a 50% chance of follow-through buying within the 1st two hours. However, there is only a 25% chance of a 3rd consecutive strong bull trend day.
If the Emini gaps open and the gap is small, it will probably close withing the 1st hour. However, that does not have predictive value when the gap is small. Unless the bears get a strong reversal down with consecutive big bear bars, the odds are that any selloff within the 1st 2 hours will end up as a bear leg in a trading range.
Friday’s setups
Here are several reasonable stop entry setups from Friday. I sometimes also show limit order entries and entries on the close of bars.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart has been in a trading range for 3 months. There is therefore a good buy and a good sell setup. The odds are that there will be a bear breakout before a bull breakout. However, most breakouts fail. Therefore, the trading range is likely to continue for at least a few more weeks.
The bulls have twice tried to reverse up strongly from the August and October double bottom and failed. When the market tries to do something twice and fails, it then usually tries to do the opposite. Consequently, the odds are that the daily chart will fall from the 2 week double top and break below the bottom of the 3 week range. This would trigger a head and shoulders top sell signal. Major reversals like this have a 40% chance of starting a bear trend. More likely, the bear breakout will fail and the trading range will continue.
Weekly chart has 20 Gap Bar buy setup
The weekly chart (see Friday) makes slightly lower prices likely within a few weeks. This is because the 20 week exponential moving average is just below the trading range. Since it is a strong magnet and it is close, the odds are that the EURUSD will not be able to resist its magnetic pull. As a result, the weekly chart will have to poke below the average within a few weeks.
Yet, the weekly chart has not touched its average in more than 20 weeks. This means that the bull trend on the weekly chart is strong. Therefore when the pullback reaches the average, there will likely be buyers there. This would be a 20 Gap Bar buy setup, and the odds favor the weekly chart going sideways to up once the pullback reaches that support.
Since the daily chart is in a trading range and there is currently a double bottom, the daily chart might rally to around the top of the 3 month trading range before there is a pullback to the 20 week EMA. Since the bulls twice failed over the past 2 weeks to reverse up from the bottom of the 3 month range, the odds are that the EURUSD will sell off to its 20 week EMA within a few weeks.
Overnight EURUSD Forex trading
The 5 minute chart sold off 40 pips overnight, reversing Thursday’s rally. This is therefore a selloff from a 2 week double top. Last week was an inside bar on the weekly chart after a 5 week selloff. It is therefore a Low 1 sell signal bar. The bears are trying to break below last week’s low to trigger the sell signal on the weekly chart. Last week’s low is just 4 pips below the current price and therefore the odds favor a break below last week’s low today.
However, last week was a doji bar and therefore a weak sell signal bar. In addition, the weekly chart is in a 4 week tight trading range. Consequently, this is a weak sell setup. Therefore there will probably be buyers instead of sellers below last week’s low. In addition, the weekly moving average is around the October low, which is about 50 pips below. Therefore, the odds are against a big bear trend.
Since the daily chart is in a 3 week tight trading range and it sold off from a double top overnight, the odds are against a big bull trend. As a result, today will probably be another trading range day.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini reversed down from above yesterday’s high in a bear channel. It traded below Friday’s low and formed an outside down bar on the daily chart. Because Friday gapped up and the weekly and monthly charts have not been this overbought in 50 years, there is an increased risk of reversal down in the next few weeks.
Yesterday sold off after a gap up and formed an outside down day. It the Emini gaps down at any point in the next few weeks, it would create an island top. While an island top is usually a minor reversal, the buy climaxes on the weekly and monthly chart make a 100 point, 5% correction more likely than otherwise. The bears need a strong reversal down before traders will begin to believe that the bears have taken 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.
