Posted 7:50 a.m.
The Emini opened with big bars and many reversals, creating a big tight trading range. Risk was big and probability was low, and traders were entering with limit orders, betting breakouts would fail. They were selling above bars and buying below, and scalping. The Emini was oscillating below the moving average and above yesterday’s low.
The bulls want a major trend reversal up from around yesterday’s low, and the bears want a micro double top below the moving average. Both setups triggered. Traders wanting higher probability wait for a breakout up or down with strong follow-through, and then enter, betting that the breakout will become a measuring gap.
This early trading range price action increases the chances that the day will spend a lot of time in trading ranges.
At the moment, the bears got a breakout below yesterday’s low with a follow-through bar, but it was followed by a bull reversal. The bulls saw the bear breakout as a failure, and the reversal up as a lower low major trend reversal. The bulls now have 4 consecutive bull bars, but not a close above the moving average. The Emini has flipped back to Always In Long and the odds favor sideways to up for an hour or two. They need to get above the high of the day to have a chance of a bull trend day. So far, today is a trading range day. The bears see it as a broad bear channel, but the reversal up was strong enough so that the odds slightly favor the bulls.
My thoughts before the open: How to trade online when the market is oversold
The Emini was neutral on all time frames coming into the report today, and there was a small bear move on the report a few minutes ago. The Emini is oversold on the 5 and 60 minute charts. The bulls see the 6 day selloff on the 60 minute chart as a bull flag. The bears see the selling as a lower high major trend reversal on the daily chart.
However, until there is a breakout of the trading range on the higher time frames, the odds are that every selloff will be bought and every rally will be sold, and that all of these breakout attempts up and down will continue to fail. This increases the chances that there will be a reversal up today.
When the market is in a trading range, traders always have to be open to the less likely outcome because low probability events are not so low probability within trading ranges. Even though the 60 minute chart is oversold, it can get much more so. A bear trend day is possible and traders need to be open to this. If the Emini is below the moving average for the 1st two hours, traders should look to sell rallies to the moving average for a swing trade down.
Today is Friday and therefore weekly support and resistance can be magnets, especially in the final hour. The weekly chart is in a tight trading range and it is slightly below the moving average. Targets are the low of the week, which was yesterday’s low, and last week’s low of 2056.50. Resistance is this week’s open and high, which are about 30 points above the current Globex price.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The day began with big bars and many reversals, all below the moving average. The bear breakout evolved into a trending trading range day. The bulls had a lower low and then a higher low major trend reversal.
The Emini traded down for 6 days, which is a lot in a trading range, so a reversal was likely today. Since this week was a bear candle, next week will probably trade up. Over the past 7 months, most strong moves on the weekly chart reversed within a week or two, and this week’s selloff will therefore likely reverse. The daily chart is in a triangle within its 7 month trading range, and it will probably breakout next week. Will it break out of the 7 month trading range? It will soon, but I don’t know it the breakout will be next week. All prior breakout attempts have failed.
Best Forex trading strategies
The single most interesting Forex cross on the daily char is the USDCAD.
It tried to top in April, but reversed up to a new high. The selloff was strong enough to make the next leg up (the current rally) possibly the final leg before an attempt at a major trend reversal. That next leg up has been strong, but is it a wedge. Wednesday’s doji created a micro double top, and yesterday was a strong bear reversal, and therefore a sell signal bar. Today is trading below the sell signal bar, and therefore today is the entry bar. The minimum goal is TBTL (Ten Bars, Two Legs) sideways to down on the daily chart, or a couple of weeks.
The wedge rally on the weekly chart formed 6 consecutive bull trend bars. This is a very strong bull breakout and it makes a sideways correction more likely than a bear trend. However, a selloff on the daily chart for a couple of weeks would create the sideways move on the weekly chart.
The current rally is testing the 2009 lower high on the monthly chart. Markets often pull back from resistance as traders decide whether there will be a breakout and measured move up (possible to the 2002 high around 1.60) or a double top reversal down. The reversal down might be a 50% pullback from the current rally down to around 1.10000, or, less likely, a selloff all the way down to the all-time low below 1.0000. If there is a pullback on the monthly chart, the most likely target is the bottom of May’s bull flag just below 1.2000.
The 5 minute chart reversed up strongly 3 minutes ago on the unemployment report. The reversal is strong enough so that today will probably end up being a high one buy setup on the daily chart for one more small leg up rather than a strong sell entry bar. This means that there will probably be one more new high before the bears have a chance at a wedge top on the daily chart. The bulls want a strong breakout above the wedge top and then a measured move up. However, a successful bull breakout above a bull channel (here, a wedge bull channel) has only about a 25% chance of success. This means that there is at least a 75% chance of 10 days of sideways to down trading soon on the daily chart.
The unemployment report created dollar strength in all Forex markets. However, all have been in trading ranges on the 240 minute chart and a breakout needs follow-through. If it lasts only a couple of bars and starts to reverse, the trading range is likely to continue. At the moment, the 5 minute charts with the best potential for follow-through are the EURJPY (bear breakout) and the USDCAD bull breakout. These offer the best Forex trading for beginners, and those trading Forex for a living will be watching them for Forex swing trade setups. Because all Forex markets moved strongly on the report, any can have a trend today.
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.
