Bull Trap Reversal
Today’s session all started with the overnight bulls hitting the 2104-2105 blue price channel resistance on the hourly chart and it formed a temporary top. At the day session open, the bulls tried to retest the overnight highs but failed and shortly after formed an hourly bear sandwich formation on the 1HR 20EMA support. Subsequently, a large hourly bear bar breakdown that hit the 2093 1HR 50SMA support level. At that point, the bulls had to hold the 2090 level as discussed in last night’s report that needed to sustain the breakout.
In retrospect, during a breakout phase the bulls should never let the bears re-take prices under 1HR 20EMA which meant the 9AM low of 2097.5 was the initial floor for bulls to hold and sustain the previous day’s breakout. By 2PM, when the 2088 1HR 200SMA support broke it finally sealed the deal that the previous day’s ascending triangle breakout was just a bull trap that turned into a reversal pattern. For the majority of the day it was just a 15minute 8EMA+20EMA bear train re-entries.
All the buyers that accumulated from the end of yesterday’s hourly bull sandwich setup had to be stopped out when 2088 couldn’t hold. The market quickly rolled down to the bottom of the blue price channel support at 2075. Overall, we were a bit too bias coming into today’s session for the bull breakout follow through that we anticipated but failed to realize our usual 1HR 20EMA key level was broken before lunch hour that started the bull trap reversal/lower high breakdown. The market has been trading almost flawlessly inside the blue channel range as this has been a rangebound market since Nov 19th. It’s important to have drawdown days after coming off a multi-week hot streak as it resets our mentality and makes us re-learn the few simple lessons in order to adapt accordingly in the future.
What’s next?
Daily closed at 2083.50 as a bear bar rejection that retraced yesterday’s range entirely. Price is still holding daily 20EMA and waiting to see if there’s a breakdown with daily 200SMA at 2058-2060.
There’s an ECB announcement tomorrow morning which could act as a kick-start for a larger swing move just like on Fed days. This is just something to keep in mind for the possible large price fluctuations.
There is no immediate target as price is sandwiched between daily 8EMA and 20EMA combined with inside the blue price channel range. Bulls would need to break back above 2094 and sustain to knock off this daily bear reversal candle setup with resistances at 2100 and 2105.
For bears: must have follow through tomorrow/Friday because today got a bear rejection candle setup. Below 2070 would confirm the momentum to target the 2058-2060 major support area then 2042 for the extension.
The intermediate targets of 2123.50 and 2128.50 have to be taken off the table now that support is broken and the setup is no longer considered high probability.
Our current plan is to short the deadcat bounces tomorrow given today's reversal setup for the continuation downside, similar to November 11th's lower high breakdown. However, we will respect the blue trading range if the market still wants to shake and have no follow through.
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The hourly extreme oversold signal that was confirmed at 3PM already got its Leg 1 up for the deadcat bounce from 2075 to 2084.25 before the market closed. Usually oversold signal bounces are quick 10-15 points so I consider this signal to be fulfilled. There could be a Leg 2 for the deadcat bounce up to 2090-2095 tomorrow for the possible backtest of resistance, but that’s not the way we trade the signals.The high executed 80% winrate for the signals is to mostly trade and take profit on the Leg 1 only and to keep a small size trailing for Leg 2.
