Posted 7:23 a.m.
The bulls reversed the Emini up from below yesterday’s low, triggering an expanding triangle bottom on the 5 minute chart and closing the gap down. The rally has been weak and this increases the chances of a deep pullback and then a trading range.
Although it is possible for the Emini to reverse down to a new low of the day and then fall for a measured move down, there is about a 70% chance that we have seen the low of the day and the best the bears can hope for over the next few hours is a trading range. The rally is weak enough so that there will probably be a pullback below yesterday’s low.
The bears are hoping for a parabolic wedge top and the start of a bear trend, but this is a low probability bet. If they are able to create 3 or more consecutive bear bars that close near their lows, the bears will probably be able to get at least 2 legs down and form a trading range.
The targets for the bulls are the 60 minute moving average and yesterday’s close. Since the 60 minute bear channel since yesterday’s high is tight, the Emini will probably have to enter a trading range soon.
My thoughts before the open: Trading price action in a pullback
The Globex Emini continued yesterday’s selling and today will probably open with a gap down. This will create a 4 day island top with last week’s gap up. Island tops and bottoms are common in trading ranges, and are not significant. Look at the rally last week. It was from a big island bottom, yet now there is an island top.
Because the rally on the daily chart was strong enough to form a 9 day bull micro channel, it is unlikely that the selloff that began yesterday will fall far before the buyers return. However, Monday’s breakout to a new all-time high was weak and the follow-through was terrible. This reduces the chances that the bulls will be able to create a measured move up. Also, even if they are able to create a rally lasting for a month or more, there is still an 80% chance that it will fail and then test down to the monthly moving average.
Usually a break below a microchannel lasts only a bar or two. Today is the 2nd day. The selling was strong, but trading tip for today is that the buyers should return with enough strength to be able to create at least 2 hours of sideways to up trading at some point today. The next support is the bottom of the July 15 reversal around 2095 and then the gap up around 2075. Although the overnight selling was strong, the daily chart is strong enough so that the bulls will probably take control before the Emini falls that far.
Traders learning how to trade the markets can look back over the past 7 months on the daily chart and see that every top had at least a micro double top and every bottom had at least a micro double bottom. This means that Monday’s top will probably need to be tested over the next few days before the bears can get a swing down on the daily chart. This can only happen if the selling, as strong as it has been for 24 hours, ends today or tomorrow and the bulls return. However, the selling has been strong enough so that the bulls will probably need to form a major trend reversal, which means that they will probably have to form a 2 hour trading range before they can create a reliable reversal candlestick pattern. Until then, the price action favors the bears.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini reversed up from an expanding triangle bottom on the open. It sold off from a parabolic wedge top and reversed back up from a wedge bottom. It then sold off from a Low 4 short to a new low of the day, and bounced into the close.
The odds were that the bulls would have at least 2 hours of sideways to up trading today, and that today might be the end of the pullback from the 9 day bull micro channel on the daily chart. Usually the pullback only lasts a day or two. The odds are that tomorrow or Friday will test back up, possibly to the all-time high because the 1st pullback below a bull micro channel is usually bought. Less likely, the bears will get a 3rd day down from the top of the bull micro channel.
Best Forex trading strategies
The price action in the Euro was a slightly weak overnight and it was slightly strong in the dollar. The daily chart of the EURUSD is testing the May low and the bulls are trying to form a double bottom higher low major trend reversal. Although yesterday was a strong bull day on the 60 minute chart, it followed a 7 bear bear micro channel on the daily chart. This can be a sell vacuum of support, but it also is a sign of strong bears. It increases the chances that the bulls will need at least a micro double bottom if they are to reverse the EURUSD up to the top of the 7 month trading range.
Those trading Forex for a living will watch to see if the overnight selloff in the EURUSD will find support around 50% down from yesterday’s strong rally. The market is within about 10 – 20 pips of that buy zone now. There is also a measured move down target there as well, based on yesterday’s trading range. The selloff over the past hour is strong enough so that the bulls will need to form a base on the 5 minute chart. Without that, the probability of the 60 minute higher low is low. The bulls will probably find support in this buy zone and then the candlestick pattern will be a breakout mode setup for a test of either yesterday’s high or low. Since the 60 minute chart is Always In Long, the bull have at least a 40% chance of a 2nd leg up on the 60 minute chart today or tomorrow.
The EURGBP chart is similar, but the EURO is weaker against the pound so the odds of a reversal up today are less.
The selloff in the dollar on the 60 minute chart yesterday was strong enough so that the dollar bears will probably get a 2nd leg today or tomorrow. The best potential for swing Forex trading for beginners is in the USDJPY. It has a spike and channel bull trend on the 60 minute chart, and yesterday had a strong breakout below the moving average. Traders learning how to trade the market can see that it has been in a tight trading range just below the moving average overnight. The bears have at least a 50% chance of a 2nd leg down from a small double top bear flag, and a bear channel down to the bottom of the 60 minute bull channel, which is below 123.00.
The USDCAD rallied overnight, but the rally was weak. Bears will try to create a double top with yesterday’s 60 minute high, and bulls will try for a breakout above yesterday’s trading range and then for a measured move up. The daily chart is overbought. If the 60 minute traders get their breakout, there will probably be sellers above and they will probably be able to trigger a higher high major trend reversal.
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.
