Yesterday was a bull trend day and it reversed Friday’s selloff. It is a High 2 buy signal bar for today on the daily chart. But it has a prominent tail on top, and the Emini has been in the January trading range. This is a low probability buy setup.
There are bull trends on the daily, weekly, and monthly charts. However, all 3 time frames have an increased chance of being in a 10% pullback, as I discussed over the weekend. Therefore, a reversal up from here might be just a bounce in a bear channel.
With the daily chart sideways for 5 weeks, traders are looking for reversals every few days. When the chart is unclear, traders tend to buy low, sell high, use wide stops, scale in, and take quick profits. The result is a trading range. That is what has been going on all year so far.
Thursday’s minor lower high is a magnet above. The Emini might have to test it this week. If the bulls break strongly above it, traders will conclude that the selloff has ended.
But if the Emini reverses down from there, traders will see yesterday’s rally as a failed test of Thursday’s high. There would then be a double top lower high, which would give the bears another chance to test down to 3500 in February.
Overnight Emini Globex trading
The Emini is up 34 points in the Globex session. It will therefore probably gap up and open around 3800. The Emini has been oscillating around the 3800 Big Round Number all year, and therefore traders see it as important.
Yesterday’s rally was extreme and therefore a buy climax. While the bulls want a 2nd consecutive big bull day, the day after a buy climax day has a 75% chance of trading sideways to down for a couple hours starting by the end of the 2nd hour. If today is a bull trend day, it will probably be a weaker type of trend, like a broad bull channel, or a trending trading range day.
Each of the past 4 days was a big reversal day, and the bears want the Emini to reverse down today. Because it is breaking far above the 60-minute EMA, and Thursday’s high is a strong magnet above, today will probably not be a big bear trend day.
Traders should expect several hours of trading range trading today. At a minimum, there should be at least one swing up and one swing down.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart is at the bottom of a 2-month trading range. Traders are looking for a breakout below or above, and then a 300-pip measured move.
Every trading range has both a buy and a sell signal. The bulls see a triangle bull flag since the January 6 high. The bears see a head and shoulders top, which is also a lower high major trend reversal.
The EURUSD has been testing the bottom of the range for 3 weeks. Today’s low so far is only a couple pips above the January low, which is the bottom of the range. Therefore, the EURUSD might break below it today.
But the bears need more than a break below the range. Traders want to see consecutive closes below the range before they conclude that the breakout is probably going to be successful.
Sell signal on the monthly chart
There is a sell signal on the monthly chart (not shown today), which will trigger if the EURUSD falls below last month’s low (the January 1 low). Since January had a bear body on the monthly chart and there is a wedge rally to a double top on the monthly chart, traders want to see if there are many sellers below last month’s low. That means that the EURUSD should at least dip below the January 1 low. It might do it today.
Remember, last month’s low is the bottom of the 2-month trading range on the daily chart, and the neckline of the head and shoulders top. The pattern on the monthly chart makes it more likely than not that the EURUSD will continue down.
As I wrote over the weekend, the next target is the September 1 high, which was the breakout point for the December rally. A more important target on the monthly chart is the November low of 1.1603. That is the bottom of the most recent leg up, which is always a target when there is a reversal down.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market sold off to below yesterday’s low. It got to within 2 pips of the January 1 low and then stalled. There is a 50% chance that today will break below that low.
At a minimum, the bears want a bear body today after yesterday’s big bear day on the daily chart. If the bears get a bear follow-through bar today, it would increase the chance of at least slightly lower prices tomorrow.
But the bears want more. They would like today to be a big bear trend day closing on its low, and closing far below the January 1 low at the bottom of the trading range. Because of the bounce from just above that low and the unremarkable range today, the bears will probably not get all that they want. But they will try to have today close below the open of the day.
The bulls hope that the selloff is just a test of support. But they need a strong reversal up over the next few days to convince traders that the bull trend on the daily chart is resuming.
So far, today is a bear trending trading range day. That reduces the chance of a big move in either direction from here. However, the bears will sell rallies, and try to get today to close on its low, and at least below the open. And the bulls will buy reversals up, hoping for a reversal day and a close above the open.
Unless there is a series of trend bars from here in either direction, traders will assume that the 2-hour trading range will continue. That means they will be scalping until there is a clear breakout.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
The Emini gapped up today and rallied in a Bull Trend From The Open. That most often evolves into a trading range, which happened today. The rally broke above last Thursday’s minor lower high, but the bears will still try to get a reversal down from below the all-time high.
The Emini has been in a trading range for a month. That is a Breakout Mode situation. The range is 200 points tall. A bear breakout and measured move down would test the November 10 low, which was the start of the 3-month bull channel, and it is a magnet.
Because the Emini is in a trading range, traders are buying selloffs and selling rallies. After a 2-day rally, there is an increased chance of a selloff for at least a day or two, especially with the reversal down at the end of the day.
Credit: Brooks Trading