Posted 7:25 a.m.
The Emini opened with a big gap up and then had a trend from the open bear trend. A big gap up after yesterday’s big selloff is a reversal, but it is confusing and the result is usually a trading range. Today might be a second consecutive inside day.
The bulls are trying to create a higher low major trend reversal. The odds are that this selloff is a bear leg in what will become a trading range day. That means that the bulls will probably get a swing up. They first need either a bottom or a strong series of bull bars, and they have neither yet.
The bears hope that the trend down continues and falls below yesterday’s low. Yesterday was a big bear inside day closing on its low. Since it was in a bear trend on the daily chart, yesterday was a sell signal bar, and the bears want to trigger the sell today by falling below yesterday’s low. Even if they are successful, it is more likely that there will be buyers below.
Even though the Emini is Always In Short, the odds are that it will create an early low of the day and have a swing up soon.
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S&P 500 Emini:
Yesterday had a sell climax. I mentioned last night that the odds were at least 70% that today would have at least a 2 hour sideways to up move, but there is often follow-through selling for the first hour or two. The Emini is currently up 46 points. I also said that yesterday’s selloff was from a double top bear flag and that it probably would create a double bottom lower high major trend reversal. This gap up open is the move up from that double bottom, but it still is below the double top bear flag and in a 3 day trading range.
The sell climax on the daily chart was so extreme that the odds are that the Emini remains in a trading range for a while. This could be days, but is also could be months. The monthly chart finally got below the moving average. The bull trend was so strong that there were going to be buyers there. I also said the the month will try to close around the moving average, which is around 1940. This is only 20 points above the current price, and there are still 3 trading days left in the month. With the monthly candle stick pattern being so big, the odds are that the Emini will go sideways for a few bars. Traders learning to trade the markets should understand that this is a monthly pattern. Three bars is 3 months, which means that the the sideways market might last a long time.
The selling on the daily chart was so severe that the first rally will probably be followed by a test down, even if the rally reached the bottom of the 7 month trading range in the 2000 – 2050 area.
August 30 through September 5 is a seasonally bullish window, and that is another reason that the probability of much more selling over the next week is less.
With today gapping up big, the daily chart might form an ii pattern. When an ii pattern has bars that are this big, it usually acts more like a tight trading range than a breakout pattern. This means that there will probably be buyers below and sellers above, rather than bulls buying a breakout above and sellers selling a breakout below. This is trading range price action.
The overnight rally has been in a broad bull channel, which means that it will probably evolve into a trading range. There might still be an attempt at follow-through selling after yesterday’s strong sell climax, but big down (yesterday) and big up (gap) today creates big confusion, and confusion is a hallmark of a trading range. The daily ranges have been huge, and therefore the legs in a trading range can be big swing trades. However, the result is still a big trading range, and neither side has an advantage coming into the day. Day traders should be open to anything. The odds are that today will stay within yesterday’s and Monday’s range, and there will be at least one good swing today. Yesterday spent a lot of time in a tight trading range, and even with today’s big gap up, today might do the same.
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After Monday’s buy climax in the EURO, it has continued to pullback. The 60 minute chart of the EURUSD is in its 2nd leg down, and a few minutes ago, it is just reached a 50% pullback of the strong rally of the past week. There will probably be buyers here, but the overnight selling on the 5 minute chart has been in a tight bear channel.
When that is the case, the 1st reversal up is usually a minor reversal. This means that the best the bulls can hope to see for at least a couple of hours is a trading range. If they are able to create one, they then have a chance of forming a major trend reversal followed by a swing up. Until then, the swing down will continue. Bears at the moment are selling at the market. Others who trade for a living prefer smaller risk and will forgo current profit potential to achieve it. They will instead wait to sell a pullback. The selling is climactic on the 5 minute chart, and there should be a pullback or at least a tight trading range soon.
The selling on the 5 minute chart of the EURJPY has been in a parabolic sell climax. The odds are that it will be followed by a trading range soon, even though the bears will remain in control until the bulls create a reversal. Once in a trading range, both bulls and bears will scalp.
The 60 minute chart of the USDJPY had a sell climax last week, and it has been in a trading range for several days. The bulls created a higher low major trend reversal over night, and the rally is near the top of the 3 day trading range. There is about a 40% chance that a major trend reversal will be followed by a strong swing up and a 60% chance that the trading range will continue. The rally on the 5 minute chart has been weak and looks more like a bull leg in a trading range than in a new bull trend.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini had a wedge bottom that was a higher low major trend reversal. It rallied above the 60 minute moving average to the monthly moving average, and now has an ii pattern on the daily chart.
The Emini reversed up from a 60 minute double bottom higher low major trend reversal and got to the monthly moving average. That is a reasonable target for Monday’s close when the monthly candlestick closes.
The rally was the first touch of the 60 minute moving average in over 30 bars so 20 gap bar bears will sell here. However, there is still the magnet of the monthly moving average and the market is seasonally strong from the end of August through September 5. The 60 minute bears might not get much of a pullback.
The momentum was good enough for the bulls to reduce the probability of a strong bear close on the week. Traders are more confident that the downside will be limited over the next week or so. The Emini might test the bottom of the 7 month trading range at some point over the next month, whether or not it first drops below Monday’s low. The odds are that the rally will be sold and that the Emini will test down to Monday’s low at some point over the next month or two.
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.
Hi Al,
I wasn’t in the room today but curious what you had to say about B26. We thought there would be a rally at some point but this bar to me looks like strong FT from a Tri BO that is shaved on both ends. Was the Prob high for more down on 27(>60 percent)? Instead buyers couldn’t wait to buy it. Any clues this was a better BTC rather than STC bar?
Thanks for all your help. Still don’t know how you can do it all
John
I talked about that today. When a buy setup in a bear does not look quite right, it is usually a trap. The bear BO was strong enough to make a 2nd leg down likely, especially since the triangle was BO modes.
The outside up bar had a prominent tail, making it a weak stop entry bar. It was also just below the MA. In a situation like that, I wait for a strong bull BO before buying because the odds are that the reversal up would fail. That is why bears sold the close of the bull bar. The probability of sideways to down was about 60%.