Posted 7:21 a.m.
The bulls got a strong breakout above yesterday’s tight trading range, but the rally lasted one bar and stalled at the 60 minute moving average, Friday’s low (the top of the gap on the daily chart), and at the leg 1 = leg 2 target based on yesterday’s early strong bull breakout. When there is a strong rally that has disappointing follow-through, the odds of a bull trend become less and the odds of a trading range increase.
The Emini reversed down strongly several bars later and it became Always In Short. However, just as the bulls were disappointed by the lack of follow-through buying, the bears also need follow-through, or they, too, will be disappointed. If so, a trading range day becomes most likely.
As I am writing, the one big bear bar at 7:15 was enough to reverse the big bull bar, and the Emini is Always In short. It will decide between a bear trend day and a trading range day. The odds favor a trading range day. The reversal down was strong enough to make a bull trend unlikely, but it is still possible. The odds are that the first rally will fail and that the Emini will test the low of the bear bar within about 10 bars.
I am writing on the next bar and the follow-through is bad. At the moment, a trading range day is most likely. Multiple reversals, big bars, within yesterday’s trading range…this all increases the chances of a trading range day. Until there is strong follow-through, traders will be more inclined to bet on reversals than on trends.
My thoughts before the open: Neutral candlestick pattern on the daily chart
The S&P Emini has been selling off for a month and it is testing the May higher low. Because it is testing the bottom of a trading range, the odds favor a bounce. However, the monthly chart is so overbought, and there is an 80% chance of a 10% correction before the end of the year (see my weekly update). Professional daytraders are aware that the probability for the bulls is shrinking as time passes, and online daytraders are ready for a big breakout, if one might come soon.
Tomorrow is an unusually important FOMC meeting because traders expect an announcement about an increase in interest rates. When the Emini expects something important, and it is at important support, the result can be a big move. Online daytraders will be prepared for a swing trade up or down, or in both directions. Sometimes a big move can occur just before a report because people who are supposed to be quiet often give hints. Although it is much more common for the big move to come on the release of the report, traders learning how to trade the markets should be prepared if there is a big bear breakout or a strong bull reversal today, or even tomorrow morning before the report.
The Emini usually searches for equilibrium before reports. This increases the odds that the Emini will be mostly sideways for today and tomorrow morning. However, there will almost always be at least one swing trade every day. If the bars start to get small with prominent tails, and the price action goes sideways, traders will switch to limit order trading and day trading for scalps.
The 60 minute chart of the Globex session is bouncing from a wedge bottom and a double bottom test of the June 9 low. It is always in long, but it is just below yesterday’s 4 hour trading range. Most traders will start the day with a neutral outlook and believe that the tight trading range price action from yesterday might continue into tomorrow’s report. However, this daytrading strategy is never absolute. Traders will be prepared to swing trade if there is a strong breakout in either direction. The odds of a strong trend day are small, but it can happen.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini reversed down on the open, and then rallied in a small pullback bull trend day.
After an initial reversal down, the Emini reversed back up in a small pullback bull trend day. Tomorrow is an especially important FOMC meeting, and the results will be released at 11 am. This will probably be followed by a big move up or down, or in both directions. Until the report is released, the moves will probably be small compared to what will follow the report. There will usually be at least one swing trade in the morning, even with the report coming out at 11 a.m.
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The Euro was the weakest currency overnight and online day traders will look for shorting opportunities today, especially on rallies. The EURGBP was had the strongest trend. Although the selloff was climactic, it was still strong enough to make the odds high that the first rally will be sold and that the best the bulls can reasonably hope to see is a trading range, not a bull trend. Online daytraders who are learning how to trade the markets should look to sell a rally to around the 5 minute moving average. Because of the sell climax, the rally could last 20 or more bars and have 2 or more legs. However, it should provide a good opportunity for Forex trading for beginners.
I have mentioned several times before that the 3 month rally on the daily candlestick chart of the EURUSD is more likely a bear flag than a new trend. There was a higher low major trend reversal in early April, but most successful trend reversals evolve into big trading ranges, which this one has. It currently is forming a head and shoulders bear flag. On the weekly chart, it is a 20 gap bar test of the moving average in a strong bear trend, and therefore a bear flag. On the monthly chart, it is a pullback form the breakout below a 10 year trading range. While the rally can last many more bars on the monthly chart, it is still more likely a bear flag than a failed breakout below a 10 year trading range.
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.
In the trading course, Al says he plots the Globex 60 minute EMA on his charts. Yet, today he mentioned that price stalled at the regular trading hours 60 minute EMA. So which 60 minute EMA does he actually follow? Regular trading hours or the Globex, or both?
I would use the Globex 60 min EMA on the Globex charts, and I use the day session EMA on the day session charts. I trade the day session charts and therefore do not pay attention to the Globex EMA. However, it is equally reasonable to trade the Globex charts instead of the day session charts.