Posted 7:15 a.m.
The Emini began with a trend from the open bull trend and tested the 60 minute moving average on the open. The rally from yesterday’s low is climactic, which increases the chances for a reversal or pullback that could last for 20 or more bars. The Emini is Always In long and the rally is strong enough so that the first reversal down will probably be bought. However, this rally probably is a buy climax and a buy vacuum test of the 60 minute moving average and the upside from here without a pullback lasting at least 10 – 20 bars is limited.
Although bulls can still be swing trading their long positions, they can only do so with very small positions because the stop is far away. Bears should wait for either a credible top, which would take some sideways trading, or for a series of 3 or more consecutive bear bars before shorting.
After a buy climax like this, the upside is usually limited for at least 10 bars, so traders will watch to see if the Emini is forming an early high of the day or a bull flag for another leg up. With the rally in as tight a channel as it is, it is climactic and many bulls will wait for at least a couple small legs sideways to down before buying again.
Since the Emini is at the 60 minute moving average, which is resistance, and the rally is following a big bear day yesterday, the odds are that today will enter a trading range within the first hour. Bears will look for a reversal pattern within the range, and bulls will look for a bull flag. The size of this buy climax is a problem for the bulls, and there might be a deep pullback before the bulls can attempt another leg up. If there is a deep pullback, that will increase the chances that the day will enter a big trading range.
The chance that this will be a big bull trend day without first pulling back for 10 – 20 bars is small, and the bulls need to strongly break above the 60 minute moving average. A big trading range is most likely for the next couple of hours, even though the Emini is still Always In long.
My thoughts before the open: Yesterday’s bear channel should become a trading range today
The Emini yesterday was in a bear trend for more than 4 hours, and in a bear channel for more than 3 hours. There is a 70% chance of at least a couple of hours and a couple of legs sideways to up day trading after this type of price action, and this began in the final hour yesterday. The Emini is up about 3 points as I am writing, just above the top of the bear channel. The price action trading strategy for the bulls is to hope that a gap above that lower high will be a measuring gap.
Channels are usually followed by trading ranges, and trading ranges disappoint traders. The odds are that the bulls will be disappointed by a gap up, if there is on, and the Emini will probably pull back in the first hour. However, the rally is strong enough so that the bulls will look to buy a higher low for a 2nd leg sideways to up. The day trading tip coming into the day is to look to buy a pullback in the first hour or so. However, since yesterday’s rally was climactic, the pullback might be complex and last for an hour or two. The candlestick pattern that usually follows a protracted bear channel and then a big rally is a big trading range, and that is what is likely to form today.
The 60 minute bear breakout was strong enough yesterday so that the Emini will probably test down after the 5 minute chart completes its 2 legged rally (the rally could be more complex and have more than just 2 legs).
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The S&P Emini futures contract today had a strong bull breakout on the open that reversed yesterday’s bear trend. After a pullback, it rallied in a small pullback bull trend up to a leg 1 = leg 2 measured move projection.
The Emini had a strong rally on the open and then a channel, doing the opposite of yesterday. After a climactic channel, there is a 70% chance of at least 2 legs and 2 hours of sideways to down trading tomorrow. Friday is the last trading day of the month and the bulls want Friday to close above April’s high. This would create a gap up on the monthly chart and it would be a sign of strength for the bulls.
Although tomorrow could have some follow-through buying for an hour or two, the odds are that it will correct sideways to down for at least a couple of hours. The bears hope that the candlestick pattern on the 60 minute chart is a lower high major trend reversal. However, since today’s rally was so strong, the best the best will probably get tomorrow is a bear leg that will become part of a trading range. The upside will probably be limited by the buy climax, and the downside will probably be limited due to the the strong rally. The odds favor two sided trading tomorrow.
Best Forex trading strategies
Traders learning how to trade the markets see that the dollar is continuing its strength form yesterday, especially against the Yen, and the oil countries, Canada and Australia. However, The USDJPY 60 minute chart is at the top of its bull channel and is getting a wedge shape. This increases the chances of a trading range or a reversal on the 5 minute chart, and means that online daytraders will be looking to Forex scalps in both directions. The USDCAD is already getting big dips on the 5 minute chart and is therefore probably in the early stages of a trading range. Traders who are trading Forex for a living will begin to take Forex scalps from the short side. The bear channel in the AUDUSD is still too tight to be buying reversals yet, but it, too, will probably enter a trading range early in the US session.
The EURUSD is falling sharply on the 60 minute chart, but it is having consecutive sell climaxes, it is near the measured move target at around 1.0800, and it is still above the April low. No one knows if it will continue down to the target without a bounce, but the 5 minute chart is at the bottom of a wedge, and this makes a trading range likely for at least an hour 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.
Thanks again Al. Great outlook to start the day with.