Posted 7:43 a.m.
The bears had a trend from the open bear trend, but failed to get below yesterday’s low, which was the bottom of the bull reversal. The bulls then formed a higher low major trend reversal, but failed to get above the top of the bear leg. The buy signal bar was big and it was within a tight trading range and it followed a strong selloff. The Emini is in a trading range.
The bulls are trying to limit the selloff to two days, which means that they are trying to keep above yesterday’s low. The current reversal up is not strong. If the Emini resumes down, the bulls will try to form a double bottom higher low major trend reversal. If the Emini falls below yesterday’s low, the bulls will try to reverse it up from an expanding triangle bottom.
The bears see a double top and need a strong breakout below yesterday’s low. The odds still favor the bulls after a 2 day pullback from a strong rally. However, if the bears get a strong breakout below yesterday’s low with strong follow-through, today could become a bear trend day.
At the moment, the reversal up is still below the top of the bear leg and although it has 5 bull bars, they are not especially strong. The Emini is Always In Short and trying to get above the high of the day and the 60 minute moving average to become Always In Long. This is a trading range start to the day. Online day traders are waiting for clarity before they will swing trade. Clarity can come from a stronger setup or from a strong breakout in either direction.
If the bears do get another leg down, bulls will look for a good buy signal bar for a double bottom higher low major trend reversal buy setup. Otherwise, the bulls will wait to see if there is a strong breakout above the high of the day. The reversal up was strong enough to make a bear trend day unlikely.
My thoughts before the open: Day trading tip is to expect another leg up
Yesterday was the 2nd day of a pullback from a 9 day microchannel on the daily chart. The odds are that today will hold above yesterday’s low and that the Emini will test the all-time high within the next few days. Once it does, the bears will try to create a micro double top and then a swing down, hoping that this is the high of the next many months. The bulls want a measured move up from this week’s breakout above the 7 month trading range, but the breakout and follow-through so far have been weak. Also, the breakout is forming in an extremely overbought monthly bull trend, which has an 80% chance of at least a 10% reversal before the end of the year.
The past 6 days have been small, so today will probably be the same. Yesterday’s late reversal was probably strong enough so that today will trade above yesterday’s high and not below yesterday’s low. However, the recent small days make a strong trend unlikely for today. The Globex has been trading down in a broad channel overnight and is around a 50% pullback from the rally that began yesterday. Bulls will look to buy a reversal up, betting that today will stay above yesterday’s low, hoping for a test of the all-time high. Bears want to get below yesterday’s low so that day traders will think that the 9 day rally was just a buy climax to one last new high.
The odds favor at least one more leg up at some point over the next 3 days. This means that the pain trade would be a bear breakout and trend down. If one begins to form and if the pullbacks are small and the Emini stays below the moving average, traders should look to swing trade their shorts and not deny what is in front of them.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini rallied on the open, but failed to get above the high of the day, and it remained Always In Short. It was in a small pullback bear trend day and had a minor reversal up, which formed a moving average gap bar. This led to trend resumption down. There was a lower low major trend reversal up from the bottom of the channel into the close.
The Emini had a strong bear trend day after it already had a 2 day pullback from a new all-time high. The candlestick on the weekly chart closes tomorrow, and so far, this week has had terrible follow-through after last week’s rally. The weekly moving average and last week’s low will be magnets tomorrow. The selling has been so climactic today that the odds favor a major trend reversal up tomorrow and a rally that lasts at least a couple of hours. However, I am still bearish over the next several months. Every prior strong selloff has failed, and this one probably will as well, but the bulls are running out of time. Once they give up, the Emini will probably correct 10 – 20% over the following few months.
Best Forex trading strategies
In overnight trading, the Euro was strong and the dollar was weak, but both may be overdone and there are reversals as I am writing. These might lead to reversals or at least a pause in the 5 minute chart trends.
I mentioned that the 60 minute EURUSD reversal on Monday was strong enough to make a 2nd leg up likely. Last night’s rally was that 2nd leg, and it reached about 50% of the way up from last week’s selloff. The reversal might continue, but the minimum objective has been met and bulls will begin to take profits and bears will begin to short.
The 5 minute chart is reversing down on the 5:30 a.m. report and it is back in the trading range of the past 4 hours. The reversal down is strong enough to make a continued 5 minute bull trend unlikely today. This means that today will probably be a trading range day. The rally of the past week has formed a wedge bear flag or a low 2 sell setup on the 240 minute chart, but last night’s rally was strong enough so that the EURUSD will probably have to transition into a trading range before reversing into a bear trend.
Once the trading range is clear, the Forex market will be in breakout out. Traders learning how to trade the markets should realize that the probability of trend resumption up then is about the same as it is for a trend reversal down at that point.
Those trading Forex markets for a living will believe that the 5 minute selloff is strong enough to make a 2nd leg down likely, even though this selloff is probably the start of a trading range that could last all day. Bears will sell the first rally for both a Forex swing trade or for a Forex scalp.
The 5 minute chart of the EURJPY had a breakout from a triangle in a bull trend, but the reversal down of the past several bars makes that triangle the final bull flag. The EURJPY has already reached its target of a test back into the triangle. The leg down is strong enough to make Forex day traders look to sell the first reversal up and expect at least a 2nd leg down.
The 60 minute chart of the USDJPY has been in a bull flag. The 5 minute chart is in a strong rally over the past 4 bars, but it is now testing the top of the 60 minute trading range. Today’s bull breakout is strong enough to make traders look for follow-through buying and they will buy the fist pullback. Because the USDJPY is at the top of the month long trading range, the upside might be limited. The bulls need a strong breakout above 124.50. The odds are that they will not get it today because most trading range breakouts fail. However, the bulls are now strong enough so that they will buy pullbacks as their best Forex trading strategy. The will Forex trade for a swing or a scalp. The bears should wait for a trading range so that selling pressure can develop.
The 5 minute chart of the USDCAD had a strong reversal up this morning. It is strong enough so that bulls will look to buy pullbacks. However, the bears see it as a 50% pullback from last night’s selloff and they will wait for some selling pressure and then look to sell. In the absence of that, the best Forex trading strategy is to buy a pullback for at least a test back up.
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.
