Posted 7:01 a.m.
The Emini reversed up from a test of yesterday’s low, but lacked follow-through. Yesterday was a tight trading range. The Emini has not yet done enough to convince traders that it is about to have a swing up or down. It might reach a measured move up or down, based on the height of the big 1st bull bar on the open.
This is a limit order market, and unless there is a strong breakout up or down, traders will have to patiently wait to buy near yesterday’s low and sell near yesterday’s high. Although there probably will be a swing trade up or down, traders will be ready to get out quickly if the move stalls.
Pre-Open Market Analysis
S&P 500 Emini: Candlestick patterns and price action after an FOMC report
Today has an FOMC report at 11 am. In general, there is a 50% chance that the initial move will quickly reverse, so most traders should not enter after the report until at least the close of the 2nd bar. There is a 25% chance of a bull trend, a 25% chance of a bear trend, and a 50% chance of both a big swing up and a big swing down. Those who trade the markets approach them with no opinion going into an event like this. They trade what they see as it unfolds, and never hesitate because some guru on CNBC confidently says that the market will go up or down. Be open to anything, be relaxed, and be objective. The bars are big so the stops are far. Trade small enough so that you can trade well. If this type of trading is too unpleasant, just watch it and do not feel guilty. It will be over by the end of the day. It is always appropriate to not trade for a few hours when not comfortable.
Yesterday was a tight trading range day. The Emini often enters a trading range or relatively tight trading range in the day or so before an FOMC report. Today will likely be mostly a trading range as well before the report. However, there is often a swing up or down in the 1st 2 hours.
The daily chart probably will have to test the July high again before it can fall too far. The weekly chart is extremely overbought and will likely have a pullback this week or next week. Both could happen in the final 2 hours of the day today.
Forex: Best trading strategies
The EURUSD Forex market is still in the middle of a month-long trading range and in breakout mode. Whenever there is a trading range lasting 20 or more bars like this, there is always both a top and a bottom in the range. The bulls see the trading range as a bull flag. The bears see it as a Head and Shoulders Top. Both are correct, but the probability of a successful breakout up or down is about 50%. The Forex markets, like all financial markets, are waiting for the FOMC report today at 11 am as a possible catalyst that could lead to a move that could last several days.
In general, there is a 50% chance that the initial move after an FOMC report will quickly reverse, so most traders should not enter after the report until at least the close of the 2nd bar. There is a 25% chance of a bull trend, a 25% chance of a bear trend, and a 50% chance of both a big swing up and a big swing down.
Those who trade the markets approach them with no opinion going into an event like this. They trade what they see as it unfolds, and never hesitate because some guru on CNBC confidently says that the market will go up or down. Be open to anything, be relaxed, and be objective. The bars are big so the stops are far. Trade small enough so that you can trade well. If this type of trading is too unpleasant, just watch it and do not feel guilty. It will be over by the end of the day. It is always appropriate to not trade for a few hours when not comfortable.
The EURUSD is often in a tight trading range in the morning leading up to the report. It has been in a 40 pip range over the past 24 hours. Traders are looking to buy low, sell high, and scalp for 10 pips and sometimes 20 pips. If there is a strong breakout over the next couple of hours, which is unlikely, day traders might try to swing trade. Nothing has changed from the chart that I posted yesterday.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini sold off on the FOMC report and then reversed up strongly. After a deep pullback, it resumed up.
Today’s bull reversal was strong enough to affect the Emini for 50 or more bars. The odds are that it will end up as a spike in a Spike and Channel bull trend over the next day or 2. The odds already favored a test of the July high of 2,100. This bull reversal increases the chances for that soon.
The weekly chart remains in a buy climax, and no matter what the day chart does, there is a 90% chance of a pullback within the next 2 to 3 weeks. This week is the 11th week in a bull micro channel. There has not been a 14 bar bull or bear micro channel in the past 10 years. It will almost certainly not happen now.
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.
