Emini Labor Day rally in possible 5 percent correction
Updated 6:40 a.m.
Today opened with a doji bar in the middle of yesterday’s range. This increases the odds that today will be a trading range day that will stay mostly or entirely within yesterday’s range. Yesterday’s big move up and today’s big gap down creates confusion, which further increases the odds of a trading range day. A trading range day has at least one swing up and one swing down. The Emini will decide in the 1st hour which will come first. The swings usually last 2 – 3 hours and then reverse into an opposite swing.
While any day can be a strong trend day, today so far looks like it will probably be a trading range day, and possibly an inside day.
Pre-Open market analysis
The Emini gapped up and had a strong bull trend day yesterday. The bulls want the High 2 buy setup on the daily chart to lead to a new all-time high. The bears want another lower high. Therefore the most important price is the August 16 lower high. If the bulls break above it, then the bears will give up on their belief of a bear channel. A bear trend needs lower highs. If there is a rally to above a major lower high, then the Emini is either in a bull trend or a trading range, and no longer in a bear trend.
Since yesterday was a strong bull trend day, there is a 50% chance that the bulls will try for trend resumption in the 1st 2 hours. Yet, there is only a 25% chance of another strong bull trend day. Furthermore, there is only a 25% chance of a reversal into a strong bear trend. Finally, there is a 50% chance of at least 2 hours of sideways to down trading beginning by the end of the 2nd hour.
Overnight Emini Globex trading
The Emini is down 10 points in the Globex market. It is therefore near the bottom of yesterday’s tight bull channel. Since Spike and Channel bull trends usually have bear breakouts and then a selloff to the bottom of the bull channel, this is typical behavior. Usually, a test to the bottom of the channel leads to a rally, and then a trading range. Therefore, the downside on the open is probably small. Furthermore, the odds favor an early weak rally. Finally, the rally will probably not extend much beyond yesterday’s high before reversing back into the developing range. Today will therefore probably be mostly a trading range day.
Because it is slightly more likely that yesterday’s rally is a bull leg in a bear channel than in a bull trend, the odds are against today being a strong bull trend day. This is because the bulls need confirmation of yesterday’s rally to convince traders that the 3 week selloff is a bull flag. Without confirmation, the odds favor the start of a 150 point correction. Hence, the bears will continue to sell even strong rallies, like yesterday’s.
Yesterday’s setups
Here are several reasonable stop entry setups from yesterday. I sometimes also show limit order entries and entries on the close of bars.
EURUSD Forex market trading strategies
The 240 minute EURUSD Forex chart has been in a trading range for a month. There is therefore always both a reasonable buy and sell setup. It is in breakout modee.
The month long trading range has no sign of an impending breakout. There is a 50% chance of a bull breakout, a 50% chance of a bear breakout, and a 50% chance that the 1st breakout will fail and reverse. Since a double top lower high major trend reversal on the 240 minute chart typically has a 2nd high that is within about 10 pips of the 1st, many bears will wait until the rally gets closer to 1.1850 before selling. Therefore, the odds favor another 50 pips higher in the week long swing up. Yet, the chart is in the apex of a triangle. Hence, the breakout up or down can begin any time.
Overnight EURUSD Forex trading
The 5 minute chart rallied 60 pips overnight in a Spike and Channel bull trend. Hence a bear break below the channel and then an evolution into a trading range today or tomorrow is likely on this time frame. However, because the 240 minute chart is in breakout mode, a strong trend up or down can begin at any time. Since the bull channel has climbed only 30 pips in the past 5 hours and many bars are only 4 – 5 pips tall, the rally is weak. This increases the chances that it will evolve into a trading range within the next couple of hours.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini had a trading range day today, and it was an inside day
The Emini opened in the middle of yesterday’s range and formed a trading range day and an inside day. Because it had a bull body, it is a buy signal bar for tomorrow. The odds favor slightly higher prices and then a lower low. However, the Emini is probably in a 150 point swing down to the March low.
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.
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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.
