Posted 7:01 a.m.
The selloff on the open was strong enough to make a bull trend day unlikely. Because today is the last day of the month and there are targets above, there is a higher probability of a late rally than on other days. The bulls are hoping that the early selling will be followed by an opening reversal up and the creation of the low of the day. At the moment, it is more likely that any rally will be just a bull leg in a trading range than the start of a bull trend. The bears are hoping that the selloff will be the spike in what they hope will be a spike and channel bear trend day.
At the moment, the Emini is Always In Short, but the bulls are trying to create a low of the day. If they are able to rally for 5 to 10 bars, the bears will try to keep the rally from going above the high of the day. They will instead hope to create a lower high major trend reversal. Day traders should be looking for a good sell signal bar if there is a rally over the next hour because it could be the start of a swing trade down.
For the bulls to regain control, they need to get back above the top of the bear reversal from the high of the day. Alternatively, they could stop the selling and create a trading range, and then create a double bottom within that range. Otherwise, the bears will remain in control and they might get a bear trend day.
My thoughts before the open: Day trading price action near the high
Today is the last day of the month. June’s candlestick pattern on the monthly chart was a sell signal bar. July traded below it, triggering a theoretical short, and then traded above it, triggering a theoretical exit. It then traded below again, and is now near June’s high and it is close enough to get back above June’s high today.
The daily, weekly, and monthly charts have been in trading ranges all year and remain in breakout mode. The 5 minute chart has been rallying for four days, and it is just below the all-time high. The 5 minute Globex Emini had a bull breakout a few minutes ago, but it is back to around yesterday’s close.
Today is the last day of the month so monthly support and resistance are magnets, especially at the end of the day. The most important resistance levels are the June high of 2122, and the all-time high of 2126.25, which occurred earlier this month. There only monthly support that is within reach is the open of the month of 2071.75, which is 30 points below and probably too far. With support being far, resistance is important, and the odds are that the month will have a strong bull body.
Since the Emini is close enough to the resistance levels to be reached today, the day trading tip for online day traders is to be ready for a bull trend and a move up to resistance. If there is a strong bull trend, it could offer good swing trading for beginners.
Because a strong bear trend down to support is unlikely, it becomes the pain trade. If the Emini begins to trade down on a day that appears to be on the verge of a bull trend to a new all-time high, it can trade down relentlessly. Bulls continue to buy, thinking that the selloff cannot last, and they continue to get stopped out with losses. If the Emini is below the moving average for the first 2 hours, be aware that a pain trade might be unfolding, and do not deny it. Look to swing trade the bear trend.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini sold off on the open, and formed an early high of the day. After the weak rally failed to breakout, the Emini reversed down in a weak bear channel to a new low, where buyers returned at the end of the day.
The month ended up as a doji bar with a bull body. With the Emini sideways for four days, it is neutral going into next month. The momentum this week is up and that increases the chances of follow-through buying and a test of the all-time high next week.
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The Euro was in overnight Forex trading, and the EURUSD just had a bull breakout a minute ago on a report. The 240 minute EURUSD is turning up from a higher low major trend reversal. Traders learning how to trade the markets should realize that the word “reversal” is misleading because 60% of the time, there is no trend reversal. Instead, the best the bulls usually get is a bull leg in a trading range, but it is big enough for a swing trade 40% of the time.
The overnight rally is still below the last lower high, which means that it is still part of a broad bear channel. The issue now is whether it is a measuring gap that will lead to a measured move up, or an exhaustive buy climax (exhaustion gap, even thought there is no actual gap) that is being vacuumed up to test the resistance of the lower high of July 27. It is strong enough to be followed by at least a little more up and possibly much more over the next few days.
The 240 minute chart of the EURJPY is also rallying, but it is near the top of July’s trading range. The EURCAD’s rally is following a strong reversal down on July 27, and it might soon stall and create a trading range, especially since it is at the top of a 10 month trading range on the daily chart.
The USDJPY 240 minute chart is turning down at the top of the 2 month trading range, and this morning’s strong bear breakout is strong enough so that bears will look to sell a rally for either a swing trade or a scalp. Because the 5 minute chart is forming a possible expanding triangle bottom, the bulls have a chance for a reversal up from this morning’s strong breakout. When a breakout is as strong as this was, those trading Forex markets for a living know that the first reversal up will probably fail, and they will sell it for a Forex scalp or swing trade.
The bulls will probably need at least 20 bars of sideways trading before they can create a reasonable major trend reversal, and the odds are against them. Even if they create the pattern, they have only a 40% chance of a swing trade up. The 240 minute USDCAD Forex chart continues to be overbought. The bears have a possible double top major trend reversal, but they do not have a good sell signal bar nor a strong bear breakout yet. The trading range of the past 2 weeks is still in effect and the candlestick pattern is a breakout mode setup.
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.
