Trump rally stalling before tax cut and budget votes
Updated 6:51 a.m.
The day began with a small wedge top that began in the last hour on Friday, but the 1st bar was a doji. While this was a reasonable higher high major trend reversal sell setup, the doji sell signal bar shows a lack of energy. Most Traders prefer to sell below a stronger sell signal bar or after a 2nd signal. The bears want a reversal down from the top of yesterday’s trading range.
The bulls see the reversal as a bull flag. They therefore want an early low of the day and then a rally to a new all-time high. However, Friday was mostly sideways. Therefore many traders will wait for consecutive big trend bars up or down before swing trading. Alternatively, they will sell a 2nd entry sell at the high or buy a 2nd entry but at the bottom of yesterday’s trading range.
While the Emini is Always In Long, it is at the top of a weak rally and a 3 hour trading range. Bears will therefore look for an early reversal down. The bulls need a strong breakout before traders will buy above yesterday’s high. This early continuation of Friday’s trading range trading increases the odds of a trading range for the 1st hour, and for a trading range day.
Pre-Open market analysis
The Emini has had a weak 3 day rally after two big bear days on the daily chart. The bulls want a strong breakout to a new all-time high. Yet, because the buy climaxes on the daily, weekly, and monthly charts are so extreme, the odds of much higher prices without a pullback first are small. Consequently, the bulls will probably take profits at a new high and the bears will continue to sell above prior highs.
The bears want a lower high or a double top with the all-time high. However, despite how overbought the higher time frames are, the odds will always favor at least slightly higher prices until the bears create consecutive big bear days on the daily chart.
Overnight Emini Globex trading
The Emini is up one point in the Globex market and near the top of the 2 week trading range. Tomorrow is the Alabama Senate vote and Wednesday has an FOMC announcement. In addition, last week’s 2 day rally looks more like a leg in a 2 week trading range than a resumption of the bull trend. Consequently, the odds are against a strong break to a new all-time high today.
Since there were 2 strong bull days, the odds are against a big bear day today as well. Therefore, the odds favor another ordinary day today. Since the Emini is not quite at the all-time high and there will probably not be a big gap up or down, traders will wait for a strong breakout up or down before swing trading. In addition, if today again has a lot of early trading range trading, today will probably be another trading range day.
Friday’s setups
Here are several reasonable stop entry setups from Friday. I sometimes also show limit order entries and entries on the close of bars.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart has had 2 legs down from a wedge rally. It is around a 50% pullback, the November 21 major higher low, and the 20 day exponential moving average. But, Friday was only a doji and it was the 6th bar without a pullback.
The bulls are trying to rally above a High 2 bull flag on the daily chart. The pullback is at support since it is around a 50% retracement, at the EMA, and just above the November 21 low. However, the 2 week bear channel is tight, there were 4 consecutive bear bars last week, and Friday was a weak buy signal bar.
While the chart is slightly more bullish than bearish over the next couple of weeks, it is still in the middle of a 5 month trading range. Consequently, the odds continue to favor sharp moves up and down that reverse rather than breakout. Hence, this selloff is most likely just another leg in the trading range.
While the odds favor at least a 150 pip bounce over the next 2 weeks, legs in trading ranges usually go past support or resistance before reversing. Therefore, the odds favor a dip below the November 21 major higher low before the next leg up begins. Furthermore, after 6 days without a pullback, the bulls will probably need at least a micro double bottom. That means the 1st small leg up will probably not get far before it tests back down.
Overnight EURUSD Forex trading
The 5 minute chart has been in a 30 pip range overnight. While the 2 week pullback in at support, it did not fall below the November 21 low. The pullback will probably have to fall a little further before the bulls will buy again. Since the November rally was strong, the odds still favor a test back up over the next few weeks. However, the bulls will probably need either a micro double bottom or one or two big bull trend days before traders believe that the bulls have again taken control.
Because the odds favor a 150 pip rally, bulls will buy pullbacks for swings and scalps. Since this 2 week selloff is more likely a pullback than a reversal into a bear trend, and now it is at support, the bears will mostly sell rallies for scalps. If they get a strong break below the November 21 major higher low, they will swing trade for a test of the bottom of the 5 month trading range around 1.1550.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini formed a weak bull trend after a 2 legged pullback to just above the low of the day. It resumed up strongly at the end of the day.
While the Emini has rallied for 4 days, the bull trend bars on the daily chart have been small. However, today’s late rally means that tomorrow has an increased chance to gap up, possibly to a new all-time high. Tomorrow’s Alabama senate vote and Wednesday’s FOMC announcement are potential catalysts for a breakout up or down.
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. We offer a 2 day free trial.
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.
Al, is it possible that there has been a fundamental change in the dynamics of the market such that we will never see a large correction. I say that because we have a very low correlation environment where the individual stocks move independently of the index, and some stocks move up, some go down with the result that there is not much net change in the index. I would love to hear your thoughts on this. Thanks for your daily analysis. I hope you are still planning to do the course on options. Best wishes.
This has come up many times in my 30 years of trading. There are always going to be surprises, and some of them horrific. I believe that there will always be 50% corrections every 10 – 30 years forever. This is in part because too many people will believe that they are impossible. Whenever there is a critical mass that believes something never can happen, it greatly increases the chance that it will.
If you saw the chart that I posted last month that shows the frequency of 3% corrections, you might have noticed that their frequency has been steadily falling for 100 years. There are fewer unknowns, and the frequency of big corrections and the size of all corrections will tend to get less at uncertainty continues to lessen in the world. This does not matter. Black swans will not become extinct. There will always be 50% corrections, but probably less often.
Al, thanks for your reply. I really appreciate the time you spend answering my questions.