The daily chart of the Forex market formed a big bull bar yesterday. After the strong reversal up from the October nested wedge bottom, traders know that a 2nd leg sideways to up is likely.
The bulls hope that yesterday was the start of a reversal up from a head and shoulders bottom. In general, a major trend reversal has a 40% chance of actually leading to a reversal of the trend. More often, the rally ends up as just a bull leg in the trading range.
If the bulls get 2 closes above the November 21 high, the rally will probably continue up to the October high and the 14 month bear trend line. That would also be a test of the 1.12 Big Round Number. Two closes above that resistance would then increase the odds of a bull trend on the daily chart, which could last 2 – 3 months.
If, however, the reverses down, especially from a micro double top, traders will conclude that yesterday’s rally was just like all of the others over the past 2 years. They would then expect an eventual break below the October low.
At the moment, yesterday was strong enough to make a test of the October high likely. But if the continues to stall here and if it forms a micro double top over the next few days, traders will look for a test back down.
The 5 minute chart of the Forex market has been in a 20 pip range overnight. This is bad follow-through for the bulls. A bull trend usually has 2 – 3 consecutive bull trend bars at a time. If today does not close above the November 21 high, traders will suspect that yesterday was simply a test of the top of the 4 week trading range.
So far, day traders are scalping. With yesterday being a bull Surprise Bar, today will probably not be a big bear trend day. There is still a chance of a bull trend, but after this much sideways trading overnight, that is unlikely. Today will probably remain a trading range day.
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