Monday, May 5, 2014

Jury Still Out on EDM6 Bear Reverse

Green June Eurodollar future opened slightly higher last night (+1 to 98.34) and traded higher on the session by 4.5 to 98.375 before reversing and currently trading steady on the day at 98.33.  Price action on Friday while bearish failed to settle nearer to the sessions low, thus prompting some confusion about how to interpret price action.  As it was, the session almost formed a bearish ‘hanging man’ as was evident in many other fixed income future contracts (A look at Candlestick Technical Conditions of TYM4). 

Friday’s lower close in EDM6 followed an indecisive ‘spinning top’ on Thursday.  It is very common to see indecisive price action a day or more in advance of the employment report.  What is important is that the prevailing price action in the week prior to the ‘spinning top’ was bullish and the price action on Friday did not help to confirm that bullish condition.  Rather, it follows that the indecisive showing on Thursday indicates a tiring bullish contingency. 

The last two months are marked with successively lower recovering price peaks.  In early-March, EDM6 failed after a strong test of resistance from the mid-December, 98.60 high.  Then in mid-March after a quick sell-off and recovery, price recovery only achieved 98.58 before falling hard several days later.  Then following the double bottom low (Mar 24 & Apr 4) at 98.16, the recovery achieved only 98.51 and created a bearish ‘shooting star’ on that mid-April session high.  Finally, Thursday’s ‘spinning top’ high of 98.405 may prove the third successively lower recovery high. 

Today’s price action could confirm the bearish implications of Friday’s price action.  A lower close today would help to confirm.  Even a slightly higher close would form a bearish two session ‘harami’ and further suggest topping price action.  Only a strong close some 6 bps higher to 98.39 would help to suggest the bullish short-term trend still active.

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