Posted 7:00 a.m.
The Emini gapped up and formed a trend from the open bull trend, but the bodies were not big, the tails were prominent, and it was far above the moving average. It tested back into the October 5 gap as expected, and then tested down. This is a trading range open, and it could continue for an hour or more. Until there is a strong breakout up or down, traders will mostly scalp, and many will use limit orders. The bears want a small double top for a possible high of the day. The Emini is Always In Long, but the rally is weak and there will probably be a 2 hour swing down at some point today. However, this initial rally could last for more than 2 hours. Most likely, the Emini is going to go mostly sideways and get closer to the moving average.
Pre-Open Market Analysis
S&P 500 Emini: Day trading tip is to expect trading range price action
I wrote in my weekend blog that the odds were for a rally early this week. The 60 minute chart had a sell climax and the monthly bulls would try to form a higher low, which would create a triangle with the October 2014 and August 2015 lows. Since the triangle would be in a 6 year bull trend, it would be a bull flag. I also wrote that the breakout below the 3 month trading range on the daily chart was strong enough so that bulls are trapped in and bears are trapped out. This means both are looking to sell a rally to around the breakout point, possibly even above 1983.25 bottom of the range.
The Emini is up 19 points with 45 minutes before the NYSE opens. A minimum reasonable target for a rally after a sell climax on the 60 minute chart is TBTL (10 bars, 2 legs), which is about a day and a half. It can be more because the legs on the daily chart over the past years have sometimes lasted 10 or more bars. In any case, the odds favor follow-through buy. If the 10 bar correction is sideways instead of up. today’s gap up could be the high of the day, and the Emini might simply form a trading range on the 60 minute chart. More likely, whether or not the Emini falls below yesterday’s low today or tomorrow, it will test probably above 1950 at a minimum soon.
I am expressing uncertainty, which is helpful because it tells me to expect a lot of trading range price action. When that is the case, I am looking to trade in both directions and I am quicker to take profits.
Today will probably have a typical gap up open. Traders will be willing to buy or sell. They need a pattern, like a double or wedge bottom or top with an appropriate signal bar, or a strong breakout up or down. Until then, they will either wait or scalp, mostly using limit orders.
Forex: Best trading strategies
The EURUSD has been in a tight trading range for over a month. The odds still favor a 2nd leg up on the daily chart after the December 3 bull trend reversal and a wedge bottom, but there is no sign that the rally is about to begin. Now that the trading range has grown to more than 20 bars, the probability for the bulls is beginning to fade. It is still more than 50%, but the bears could easily get a strong bear breakout at any time and then a selloff below the December 3 low.
I have mentioned many times over the past week that the 60 minute chart was likely to go sideways for several days, which it has. The bulls see a wedge bull flag. The bears see last week’s rally as a double top with the December high. With the price action going sideways, neither is swing trading. Both are either waiting or scaling for 20 – 50 pips. Day traders who are trading the 5 minute chart are scalping for 10 – 20 pips and entering a lot with limit orders. Until there is a strong breakout up or down, traders will continue to scalp or wait.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini sold off in a pair of wedge bottoms, and then rallied back up to test the open, forming a trading range day.
The 60 minute chart had a sell climax that ended yesterday. Traders expect about TBTL (10 bars, 2 legs) sideways to up. Today was the 10 bar in the pullback, and the rally was a 2nd leg. This met the minimum. Bears will be more willing to sell again, and bulls will be more cautious, unless there is a strong bull breakout. Today had a lot of trading range price action with bulls and bears making money all day with limit orders. Tomorrow will probably be similar, but with a smaller range.
See the weekly update for a discussion of the price action on the weekly candlestick chart and for what to expect going into next week.
Traders can see the end of the day bar-by-bar price action report by signing up for free at BrooksPriceAction.com. I talk about the detailed S&P Emini futures price action real-time throughout the day in the BrooksPriceAction.com trading room, and a 2 day free trial is available.
When I mention time, it is USA Pacific Standard Time (the Emini day session opens at 6:30 am PST, and closes at 1:15 pm PST). You can read background information on the intraday market reports on the Intraday Market Update page.
My comments about the 5 min chart are about the US session, but when I talk about the 60 min chart and daily chart, it is 24 hours.
Hi Al,
When writing about Forex, you mean US session, do not you?
Thanks for your great comments!
Pity that I have not found them ealier..