Posted 7:15 a.m.
The S&P Emini futures contract opened with a series of big bars and reversals, creating an early limit order market at yesterday’s low. It then reversed up strongly to the 60 minute moving average. It is always in long, but follow-through has been bad after strong breakouts for the past week, and this follow-through will probably soon disappoint the bulls. The Emini will probably enter a trading range. However, the rally is strong enough so that the odds are that pullbacks will be bought, even though the bulls are not confident of a bull trend day.
The bears need a strong reversal down, or a trading range than forms a topping pattern. In either case, it would take many bars for traders to believe that the bears have taken control. Instead, they will see any selloff as the start of a bull flag. However, because the Emini has been in a trading range for 2 weeks, pullbacks can be very deep.
The reversal was strong enough so that it might remain the dominant feature of the day. At the moment, there is probably a 60% chance that the Emini has put it the low of the day.
My thoughts before the open: Price action trading in a trading range
The Globex Emini chart sold off overnight toward the bottom of the 2 week trading range. The Emini has had a weak rally for the past several hours. If it opens around this level, it will be testing yesterday’s low and the middle of the 2 week trading range. It is still in breakout mode, which means there is about an equal chance of a breakout to a new high and a bear breakout. If there is a bear breakout, if might be the start of the 10% correction down to the monthly moving average.
I mentioned in the price action trading room that June 25 to July 5 is one of the strongest times of the year. The implication is that the 2 weeks before then is not strong. This increases the chances of sideways to down over then next couple of weeks.
The intraday trading strategy has been the same for a couple of weeks. Traders will look for swing trades up and down, but they then will look for reversals, instead of trend days. Since the Emini has been in a trading range for 2 weeks, traders expect disappointment after strong swings, and are quick to take profits and to reverse. Until there is a strong breakout with follow-through, day traders will continue using this price action trading strategy for this trading range candlestick pattern. Many of the reversals have provided good day trading for beginners, with good signal bars and good context. The daytrading tip is to expect more of the same until there is a strong breakout.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini’s early rally failed at the moving average and led to a measured move down. There was a double bottom major trend reversal at the end of the day.
The Emini’s opening rally failed at the moving average and was followed by a measured move down. Strong bull bars failed at the moving average all day. A double bottom major trend reversal and a 60 minute expanding triangle bottom triggered at the end of the day and there might be follow-through buying tomorrow. Tomorrow is a Friday and traders learning how to trade the markets will need to pay attention to weekly support (like last week’s low) and resistance (like this week’s open) because they will be magnets tomorrow.
Best Forex trading strategies
Traders learning how to trade the markets can see a wedge top and consecutive buy climaxes on the 60 minute EURUSD chart. A reversal down began overnight. Although it was not particularly strong, it should result in at least a couple of legs sideways to down. Traders who are trading Forex for a living will be much more willing to sell rallies.
The 2nd leg up in the wedge was strong enough to make traders wonder if the count was reset and that it was actually the 1st leg of the wedge. This means that the current selloff might be a pullback that leads to one more new high in this rally before the wedge top leads to a correction.
This is an example of confusing Forex price action and it increases the chances of a trading range. Daytraders know that either the wedge top is complete and a rally will fail and lead to a 2nd leg down, or that the wedge might have one more high and lead to 2 legs down. In either case, trader expect the rally to fail and to lead to a swing down on the 60 minute chart. The downside target is the bottom of the wedge, around 1.1100.
If the EURUSD does go for one more new high, that rally would test the May high around 1.1500, and traders will look for a double top in addition to the wedge top. Bulls want a strong breakout above that level, and then a measured move up on the daily chart, but the 60 minute chart has a wedge, and it will probably soon correct down before the daily chart bulls can try to test higher.
The USDJPY on the daily chart is overbought and the tight trading range around 120.00 is a magnet and a potential final flag. However, the bears need to create more selling pressure before a pullback to that area becomes likely. The 60 minute chart is in a 2 week trading range and it could easily have a measured move up before any pullback on the daily chart.
The daily chart of the USDCAD has a potential lower high major trend reversal, but the current rally is steep enough so that the bears will probably need for the market to go sideways for several days before they have a reasonable chance of a 2nd leg down.
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.
Is there any reason that you don’t address 5 min chart on FOREX market?
Al –
I took the ii – 2ES – top of a channel setup on the daily chart (5/22) for a swing down. My question is regarding stop placement. Would the swing stop be above todays bear BO bar (6/4) or should it be moved to break-even, since the MKT already tested the entry price once (5/27) and turned down. Usually, I trail the swing stop but since we are in a TR my inclination is to widen it and keep it at break-even.
The NFA does not want me to address trade management for a trader who is currently in a trade. Let me speak in general terms. I prefer to move the stop to breakeven after it’s tested the entry price only there has then been a strong bear BO. This in not the case yet. If the bears are in control, they should not let the mkt rally above yesterday’s lower high. The reality is that as long as it is still in the tight trading range, it could easily go above the May 27 lower high and still be on the sell. If I were in the trade, I would not want it to come back. Also, I would be more inclined to scalp until there was a bear breakout. If I were swinging, I would get out around breakeven and then look to sell again if there was then another sell signal. Since it is still in a tight trading range, I think that the odds are better than 50% that it will disappoint the bears by going above the May 27 high, and then disappoint the bulls by turning right back down. Until there is a strong bear breakout, this is more of a limit order mkt, which means that it is difficult for swing traders.