Posted 7:05 a.m.
The Emini gapped down, but had trading range bars on the selloff to test yesterday’s low. The bears got a breakout below yesterday’s low to trigger the low 2 short on the daily chart, but the follow-through has been weak. This makes the selloff more likely a bear leg in what will become a trading range.
The bulls want a reversal up from yesterday’s low and then a double bottom with yesterday’s low. Until there is a strong breakout up or down with good follow-through, the market will still be in a trading range and swing traders will wait.
At the moment, the Emini is always in short, but there is no follow-through selling and the market is finding support at yesterday’s low. The bulls need an upside breakout with follow-through to convert this to always in long. Since the selling has had bad follow-through and the bulls have not yet reversed up strongly, the Emini is in a tight trading range, waiting for a breakout.
With the market in breakout mode and the FOMC report coming at 11 a.m., the odds are that today will probably be mostly quiet going into the report. However, day traders need to be ready for a swing trade if a strong breakout develops.
My thoughts before the open: ABC bear flag
Nothing has changed and the Emini is still deciding between a low 2 short (an ABC bear flag) on the daily chart and a double bottom on the 60 minute chart. The rally failed to get above 2075, which was the last lower high in the bear channel. It went above Thursday’s lower, but that was not followed by a lower low and therefore might be part of a pullback rather than a lower high in the channel. The bears see this 3 day rally as a double top bear flag on the 60 minute chart, and the bulls see it as a higher low on the daily chart. The market has been waiting for the FOMC report today at 11 a.m. to provide the answer. The breakout can be up, down, or both. About 50% of breakout mode setups go the wrong way and reverse.
The start of an FOMC is usually like any other day, but the market often enters a tight trading range for a couple of hours before the report. Day traders should be out of positions going into the report. Most traders should not enter until at least the 2nd or 3rd bar after the report. Traders learning how to trade the market have to be prepared for possible big bars, fast moves, and possible reversals. All traders should trade small if the bars are big because the stops are often far away.
Summary of today’s price action and what to expect tomorrow
There was a high bull breakout on the FOMC report that had a series of buy climaxes.
Because of the consecutive buy climaxes after the FOMC report, tomorrow will probably have at least 2 hours of sideways to down trading, but there might be some follow-through buying in the first hour or two. The chance of another big bull trend day or of a big bear trend day is small. because the rally went above the final lower high in the selloff of the past couple of weeks, the 60 minute chart has converted from a bear trend to either a trading range of a bull trend. The next significant resistance is the all-time high. Bulls want a breakout and a measured move up, and the bears want either a double top of a wedge top with the September and December highs.
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.
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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 about the overshoot of the trendchannel line on the 60 min chart, would you consider a short here? tnx Andre
When a breakout is this big, the odds favor follow-through buying for many days and some kind of a measured move up. I think most traders were surprised by the size of this breakout, and it will therefore have bulls trapped out and bears trapped in. I think that it is too early to be shorting and that this is an instance where a bull breakout of a bull channel might lead to a leg up.