Emini trend reversals need follow-through selling
Updated 6:45 a.m.
The Emini gapped up and had 2 strong bull bars on the open. The Emini is Always In Long and this is enough strength and the context is good enough to make a bear trend unlikely. The odds are that today will either remain a bull trend day, or become a trading range day. It could be a very strong bull trend day.
When there is a gap up and rally, the Emini usually has to get close to the moving average within 10 – 20 bars. It can do it by reversing down or by going sideways. If it reverses down, the bulls will try to create a double bottom with the low of the 1st bar. This usually comes around the moving average.
Because this opening rally is at the daily moving average, it could stall and form an early high of the day. Yet, without a strong reversal down, the best the bears will probably get is a trading range day.
Pre-Open market analysis
The Emini formed an outside down week last week. Because of the extreme buy climax on the weekly chart, last week has a reasonable chance of starting a 2 – 3 month correction. At the moment, the odds favor sideways to down over the next couple of weeks. However, the bears need follow-through selling. Consequently, this week is important. If the weekly chart closes on Friday with a bear body this week, it will increase the odds that the correction has begun. On the other hand, if it has a bull body, especially a big bull body, it could completely undo what the bears accomplished last week.
Thursday was a big bear breakout day on the daily chart. Friday was a small bull inside day. Because that is bad follow-through, it lowers the probability that the correction has begun. The odds are still better than 50% that a rally this week will form a lower high. However, one or two strong bull days will increase the odds for the bulls. Consequently, they could make one more new all-time high likely.
Overnight Emini Globex trading
The Emini is up 13 points in the Globex market. It will therefore probably gap up today. This will reverse more of Thursday’s bear breakout. Sometimes when there is a strong breakout at the start of a bear trend, the bulls reverse back up to above the top of the bear breakout. Then, the bears sell aggressively and take control. The bad follow-through selling on Friday and again today increase the chances that the 2 day rally will continue up to test Thursday’s sell climax high.
Because the Emini will open today at around a 50% pullback, the bears need a reversal down from this resistance. If they fail to reverse the rally back down, the odds will favor a test of Thursday’s high. If they fail to get a reversal down within few days of that test, the bulls will have completely erased Thursday’s selloff. The odds then would favor either a new high or a continued 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 bull channel that began on July 5 has evolved into a trading range. Every trading range has both a reasonable buy and sell signal. The bulls see the overnight selloff as a pullback from the breakout above the wedge bull flag. The bears see it as the start of a reversal down from a double top lower high major trend reversal.
The daily chart last week pulled back to nears its 20 day exponential moving average. Bulls bought the pullback. However, since the monthly chart is testing resistance, the bears are selling rallies.
The 240 minute chart has been in a trading range for 2 weeks. It is therefore close to neutral. This means that the odds of a bull breakout and a measured move up to above 1.2000 are about the same as for a measured move down the the July 5 low, which was the start of the tight bull channel.
Minor or major reversal?
The weekly chart is in a tight bull channel and therefore a strong bull trend. This means that any reversal down on the 240 minute chart will be minor on the weekly chart. Consequently, even if the bears reach their target of a test of the July 5 low on the daily chart, the 300 pip reversal will simply be a bull flag on the weekly chart. Therefore the odds are that the best the weekly bears get is a trading range lasting a few months.
It is still more likely that any selloff will reverse back up to test the August 2 high. However, a deep minor reversal will make traders see the bears as strong. As a result, the odds of a major reversal on the daily chart after a rally back up the the August high would be 40%. There would be a 60% chance of either a continued trading range or a resumption of the bull trend.
Overnight EURUSD Forex trading
The 5 minute chart has been in a 20 pip range for 5 hours. In addition, it has been in a trading range for 6 days. Furthermore, that range is within a bigger range that is still probably growing. Consequently, the odds are that swings up or down will probably only be 20 – 40 pips. In addition, the day will probably be another mostly trading range day. Hence, day traders will be looking for mostly 10 pip scalps.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini gapped up and tested Thursday’s sell climax high, the low of 2 weeks ago, and the 50% pullback from last week’s selloff. It spent most of the day in a tight range at this resistance area.
The Emini gapped up and rallied to resistance at Thursday’s sell climax high, the 50% pullback, and the weekly sell signal bar low from 2 weeks ago. The bears want this rally to totally erase Thursday’s selloff and lead to a new high. They need more buying over the next few days.
The bears want a lower high and then a 2nd leg down from Thursday’s selloff. The Emini might go sideways for even 2 months before getting a 2nd leg down. That is what happened after the September 9, 2016 big one day selloff. The odds slightly favor the bears. This is in part due to the extreme buy climax on the weekly chart. Yet, a day or two of strong rallying would make the probability back to 50-50 for the bulls and bears.
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.
