Posted 7:15 a.m.
After yesterday’s buy climax, two-sided trading was likely today, and today opened in the middle of yesterday’s channel and between the 5 and 60 minute moving averages, and the first several bars were sideways and had prominent tails. This is a trading range open, and it is a sign that today might have a lot of trading range price action. Although yesterday rallied all day, it spent a lot of time within tight trading ranges, and that might be the case again today.
The bears got a strong swing down on the open and they are testing yesterday’s bottom of the channel, which is about a 50% pullback from yesterday’s high. Despite the strong early selloff, the odds favor a trading range day. After yesterday’s extreme strength, a bear trend day is unlikely. The selling might last for a couple of hours, but it will probably evolve into a trading range. However, daytraders have to be open to a possible bear trend day.
At the moment, the Emini is Always In short and there is room down to yesterday’s channel bottom at 2110. However, the odds are that today will end up having a lot of trading range price action, and therefore this selloff, as strong as it is, will probably be a bear leg in a trading range.
The bulls hope that a test of 2110 will come in the form of a parabolic wedge bottom, and that a reversal up there will create the low of the day. The bulls need several consecutive bull bars and a bull breakout for traders to believe that they will be able to rally the market for a swing trade up. Without that, any rally will probably be a bull leg in a bear trend or trading range.
My thoughts before the open
Although the Emini ended the day Always In long, the Emini rallied yesterday within a tight channel for several hours. This makes the odds high that it will correct sideways to down for at least a couple of legs and a couple of hours today. There might be follow-through buying for the first hour or two, but there is a 70% chance of a pullback that begins within the first two hours. This means that the day trading strategy for traders learning how to be daytraders is to expect two sided trading early on, and the day trading tip is to be ready for swing trades in both directions today. Because the Emini is back to the tight trading range of last week and because yesterday was a buy climax, today might be a small day with a lot of tight trading range price action.
However, an important price action trading strategy is to always be ready for a breakout with strong follow-through in either direction, and when one comes, do not find reasons to deny it. Day traders should try to trade at least a small position in the direction of the breakout.
The daily chart is still in a broad bull channel and it is just below the all-time high. Traders learning how to trade the markets have to be aware that the channel is still a bull trend, no matter how overbought the monthly chart is. Until there is a clear, strong bear breakout, the odds favor higher prices.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini sold off briefly on the open to test the bottom of yesterday’s channel and then entered a triangle for four hours. It rallied at the end of the day to end above the open, creating a small bull bar on the daily chart.
The Emini pulled back from yesterday’s strong bull reversal, and spent most of the day in a trading range, which was likely. Tomorrow is the last trading day of the week and off the month, so weekly support and resistance will be magnets, especially at the end of the day. The bulls want a gap (close above last month’s high) as a sign of strength. The bears want a selloff to erase the bull reversal. The bull trend on the higher time frames and yesterday’s rally on the 60 minute chart are strong enough to give the bulls an advantage going into tomorrow. The Emini bulls will try for a new all-time high tomorrow.
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The dollar continued its strength overnight against all markets. The USDJPY is beginning to have deeper pullbacks on the 60 minute chart and the bull channel will probably turn into a trading range soon. Forex traders who are trading Forex markets for a living are beginning to sell new highs, and are continuing to buy pullbacks.
The 60 minute USDCAD is at a wedge top in an overbought bull trend and it will also probably begin to pull back over the next couple of days. Online currency trading will still be mostly be on the buy side, but bears will begin to sell rallies, expecting a test of the bottom of the wedge at around 1.2400.
The AUDUSD is in a free-fall sell climax, and because the channel down is so tight, the Forex price action makes it difficult to buy. Traders will continue to sell rallies. However, because it is breaking below the bottom of a tight 60 minute channel, it will probably have a sharp bear rally soon, possibly to the gap above 0.7768.
The EURUSD is the strongest Forex cross against the dollar among the major markets. It tested the 1.0800 measured move down target on the 60 minute chart overnight, which is a logical area for it to bounce and begin to form a trading range between the March-April and May trading ranges. It should bounce to the 1.1080 area over the next week or two, but it might have to build a base for a couple of days first.
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.
