Posted 7:40 a.m.
The Emini opened with a gap up to the top of yesterday’s channel. The bears wanted an expanding triangle top and early high of the day. The bulls wanted a test of the gap or of the moving average and then an opening reversal up and an early low of the day. It was in breakout mode and in a small range. This increases the chances of a breakout and at least a measured move. When the range is this small, it increases the chances of a swing that is more than a measured move.
At the moment, the Emini is still above the moving average, and it is above the bottom of the double bottom. However, it would not be in such a tight trading range is either side had an advantage. Day traders are waiting for a breakout with follow-through in either direction before they will swing trade. Usually an early tight trading range increases the chances of a lot of trading range price action for the rest of the day. However, when the range is especially tight, like today, there is an increased chance of a big trend after the breakout. Do not be in denial if the market begins to trend and stays on one side of the moving average all day.
My thoughts before the open: Learn how to trade a test of the high
Yesterday’s strong reversal up from a 20 gap bar test of the moving average on the 60 minute chart had follow-through buying overnight. The bulls want a breakout to a new all-time high, but the 60 minute tight channel has gone on for 5 days and is therefore climactic. The June lower high of 2122 is just 9 points above the current Globex price and could easily be tested today. Yesterday’s selloff on the 5 and 60 minute charts was strong enough to increase the chances that a gap up or early buying today could fail and result in a higher high major trend reversal. However, yesterday’s reversal up was so strong that there might be some follow-through buying in the first hour or two, even if there might then be a reversal down.
Because every strong rally and selloff of the past 8 months has failed to create a successful breakout of the trading range, the odds are that this one will fail as well. Since it is close to the top of the range, traders learning how to trade the markets should look for a candlestick pattern, like a major trend reversal, to sell for a swing down today. However, it is important to not be in denial if the rally just continues up all day and breaks to a new all-time high. If the Emini holds above the moving average and every pullback is bought, day traders will swing trade their longs and not worry about a top until there is a strong reversal down to below the most recent higher low.
Traders learning to trade the markets can see that the 5 and 60 minute charts are overbought and the Emini is at the top of its trading range on the daily chart. This means that the odds favor that the bulls will be disappointed today or tomorrow. However, as long as it is working higher, traders will look to buy pullbacks and bull breakouts for swing trades and scalps.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini gapped up to near the all-time high, but traded in a very tight trading range.
The Emini is testing the all-time high, but this is the 7th consecutive day with a higher low, and that is unusual when a market is still within a trading range. The odds are that it will pull back tomorrow. Trading ranges constantly look like they will breakout up and down, but 80% of the attempts fail. This one will probably be like all of the others, and disappoint the bulls tomorrow with a pullback.
If the Emini does successfully and strongly break above the all time high, traders cannot be in denial, thinking that it should not happen. If it does, traders need to look to buy. However, if the bulls do get their breakout, it will probably fail within about a month because the monthly chart is so unusually overbought.
Tomorrow is a Friday and the only nearby support is this week’s low. The nearby resistance is the all-time high and all-time high close. Since both are less than 10 points from today’s close, the Emini can easily reach them tomorrow. In fact, it could even gap above them on the open.
Best Forex trading strategies
The EURUSD sold off again over night, and the 3 day selling is in the 3rd push down of a spike and channel wedge. This is a climax, and the odds favor 2 legs up on the largest timeframe on which it is visible, and that is the 60 minute chart. That means that the EURUSD will probably rally today or tomorrow.
It needs a bull breakout on the 5 minute chart. The 60 minute sell climax might be a sell vacuum test of the May low is a good environment for a reversal. The bulls want a double bottom higher low major trend reversal on the daily chart.
If this is the start of the reversal on the 5 minute chart, the bulls need a much stronger reversal up. The EURUSD might have to go sideways to build some buying pressure before it can create a stronger reversal.
While it is still Always In Short on the 5 and 60 minute charts, a reliable reversal pattern could provide good Forex traders for beginners, who would look for a swing up.
Traders learning how to trade the markets can see a 60 minute spike and channel bull trend on the USDJPY chart. This is a buy climax and it might be a buy vacuum test of the top of the June bull flag on the daily chart. If it forms a double top with the top of the flag, it could pull back for a swing trade down on the 5 minute chart. Less likely, it will break strongly above the bull flag. It should stall and pullback within the next 30 pips or so.
The 5 minute chart is near the top of the overnight spike and bull channel bull trend, but there is no sign of a top yet. However, Forex swing traders should watch for a possible major trend reversal on the 5 minute chart today for a swing trade down. Without that, the channel can continue up indefinitely. Day traders should watch for a candlestick pattern to short for a swing down today or tomorrow.
The other major Forex markets had mostly trading range price action overnight.
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.
Al – What is the difference b/w a tight trading range and a trading range?
Is it the size of the range or the number of bars within the range?
Do you trade them differently? Meaning are you more inclined to buy a BO of a trading range vs a tight trading range one?
I define them in the course. In general, a tight trading range has a height that is too small to enter with stop order. When it is too tight, it is difficult to make money even with limit orders. It can have any number of bars.