E-Mini Breaks Out Below, But Selling Doesn’t Follow Through

The futures traded below January low, triggering the sell signal from the second OO pattern on the monthly chart. However, there was no follow-through selling and the E-mini reversed back above the middle of the bar. Monday is the final day of the month. The bulls want a close far above the middle of the bar (4345). The bears on the other hand want a close below the middle of the bar.

The forex tested the trading range low in a sell vacuum but there was no follow-through selling. The EUR/USD is in the middle of the 4-month trading range and lack of clarity is the hallmark of a trading range. The bulls want a breakout above the top of the trading range followed by a 400-pip measured move. The bears on the other hand want a breakout below the trading range followed by a 400-pip measured move. Until there is a breakout with strong follow-through, the odds favor that breakout attempts up and down will fail and the 4-month trading range will continue.

S&P 500 E-mini futures

The Weekly S&P 500 E-mini chart

  • This week gapped down on Tuesday and had follow-through selling on Wednesday testing the January low. Thursday gapped down far below January low but reversed up sharply into Friday’s close.
  • We have been saying odds favor a second leg lower after a pullback from the January sell-off. This week likely has ended the second leg sideways to down.
  • The bulls want this to be the start of the reversal up to re-test the trend extreme high from a lower low major trend reversal and a wedge bull flag (Dec. 3, Jan. 24 and Feb. 24).
  • Friday closed 1 tick below the high. It is a strong bull signal bar for Monday, increasing the odds of a gap up. Small gaps usually close early.
  • The bulls need to create consecutive bull bars trading far above the Feb. 2 high to convince traders that a re-test of the trend extreme is underway.
  • Bears want the pullback (bounce) to reverse lower from a lower high or from a double top bear flag with Feb. 2 high. If the bears get that, they then want a measured move down to around 3600 based on the height of the 7-month trading range.
  • However, if there is a third pushdown, and especially if it is weak, it will form a wedge bull flag with Jan. 24 and Feb. 24 low.
  • Al said that if there is a break below the Feb. 24 low, the E-mini might dip below 4,000, but traders will buy it. There is a 50% chance that the Feb. 24 low will be the low of the year. March and April form the pair of consecutive months that is the most bullish of the year, and therefore the E-mini is entering a timeframe that has an upward bias.
  • We have said that the 50-day, 100-day and 200-day moving averages are resistances above. This remains true.
  • Monday is the last trading day of the month, and how the day closes will influence the look of the monthly candlestick. The middle of February’s range around 4345 may be an important magnet on Monday.
  • For now, odds slightly favor sideways to up for next week. Traders will be monitoring if the bulls can create strong follow-through buying or if the E-mini stalls at some resistances above such around the February 2 high or the 50-day, 100-day or 200-day moving averages area.

EUR/USD Forex market

EUR/USD Weekly Chart
  • This week’s candlestick on the weekly EUR/USD Forex chart was a bear bar with a small bear body, a long tail below and a prominent tail above.
  • The EUR/USD re-tested the January low but reversed up to close above the middle of the bar. The sell-off was likely a sell vacuum test of the 4-month trading range low.
  • The bears want next week to be the fourth consecutive bear bar followed by a breakout and a 400-pip measured move down based on the height of the 4-month trading range.
  • However, this week has a small bear body and a long tail below. It is a weak sell signal bar. Selling below a weak sell signal bar at the bottom of a 4-month trading range is not a high probability bet. Odds are there will be buyers below as traders BLSH (Buy Low, Sell High) in a trading range.
  • The bulls want a re-test of the Feb. 10 high followed by a 400-pip measured move higher. However, they will need consecutive bull bars closing above the Feb. 10 high to convince traders that the bull breakout will succeed.
  • We have said that the EUR/USD is in a tight trading range and odds of reversal are more likely than breakouts. This remains true. Until there is a breakout with strong follow-through, the odds favor that breakout attempts up and down will fail and the 4-month trading range will continue.
  • Al said that the EUR/USD has been sideways for 7 years. Since trading ranges resist breaking out, it is still more likely that the whole selloff last year will reverse up for many months before breaking below the 7-year range.
  • If there is a bear breakout, the bulls will make another attempt at a bottom around the March 2020 low. That would be a higher low double bottom in the 7-year range, and the current 4-month tight trading range would then be a likely Final Bear Flag.
  • Currently, the EUR/USD is trading around the middle of the tight trading range. Lack of clarity is the hallmark of a trading range.

The EUR/USD daily chart

EUR/USD Daily Chart
  • The EUR/USD reversed lower from a micro double top bear flag (Feb. 16 and Feb. 21) and broke below Jan. 28 low.
  • Thursday was a sell vacuum test of the trading range low but there was no follow-through on Friday.
  • Friday was a bull inside bar closing near the high. It is a good buy signal bar for Monday.
  • The bulls hope that it can lead to a re-test of the February 10 high, followed by a strong breakout and a 400-pip measured move up.
  • The bears want the pullback (bounce) to reverse lower from a lower high or a double top bear flag with Feb. 16 high. If there is another leg lower, it would be the third leg down since Feb. 4. The first legs down are Feb. 14 and Feb. 24.
  • The bears would then want a breakout below the 4-month trading range followed by a 400-pip measured move.
  • Which is more likely? We have said that the EUR/USD has been in a tight trading range for 4 months. Traders should expect reversals are more likely than breakouts.
  • Until there is a breakout with strong follow-through, the odds favor that breakout attempts up and down will fail and the 4-month trading range will continue.
  • Al said that because the EUR/USD has been in a trading range for 7 years and the current leg down has lasted an unusually long time, traders should expect a rally lasting at least a couple of months before the EUR/USD trades much lower.
  • If there is a bear breakout, the bulls will likely attempt to reverse higher again around March 2020 low. That would be a higher low double bottom in the 7-year range, and the current tight trading range would then be a likely Final Bear Flag.
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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