Emini failed 2500 breakout before FOMC announcement
I will update around 6:46 a.m.
Today began with a reversal down from yesterday’s high. Yesterday was a bull doji day on the daily chart after 5 strong bull days. Today will probably be weaker still. This means that today will probably have a bear body. Therefore, it will probably close below the open. Hence, today will probably be either a trading range day that closes below its open or a weak bear trend day. If there is a strong rally in the 1st 2 hours, it will probably fail.
Every day for the past 7 days had early consecutive strong bull bars. Today had early consecutive strong bear bars. Hence today is different, and therefore less likely to close above the open. While the bulls hope for an opening reversal up from the moving average and an early low of the day, the odds favor a sideways to down day. Because the 2nd bear bar was not especially big, the momentum down is not strong. This therefore reduces the chances of a big bear day.
Pre-Open market analysis
After gapping and rallying above 2500 yesterday, the day reversed down. It is a sell signal bar for today. Yet, after 6 consecutive bull days, it is a low probability sell signal. In addition, it had a bull body on the daily chart and it closed above its midpoint. Furthermore, Wednesday’s FOMC meeting creates uncertainty. That therefore lowers the chance of a big bear day today.
How do pullbacks begin?
While the 4 week bull channel on the daily chart is tight, it has 3 pushes up. It is therefore a wedge and a buy climax. This increases the chance of a pullback over the next week or two. Furthermore, the rally broke above the major resistance of the August 8 top of a trading range and the 2500 Big Round Number. Since the breakout has not been strong and there so far is no strong follow-through, the odds favor a pullback.
Pullbacks usually begin with either a micro double top, a strong reversal down, or a series of 3 or more consecutive bear bears. None is present yet, but tomorrow’s FOMC announcement could begin the reversal. Once there is a reversal, the minimum target is the most recent major higher low in the bull channel. This is the August 21 low of 2414, which is 90 points below. Because the bull trend is so strong on the weekly and monthly charts, the odds are any reversal will be a bull flag. It therefore will probably lead to higher prices.
Overnight Emini Globex trading
The Emini is up 1 point in the Globex market. Every day over the past week has been a trading range day. That increases the chances of a trading range day today. In addition, the Emini usually becomes neutral going into an FOMC report. That increases the odds of a trading range today. Yesterday’s range was a little bigger than the ranges of the past few days.
Since those ranges were unusually small, most algorithms are now geared toward small ranges. At some point, there will not be enough computers taking the other side. The result will be that this style of trading will end. Consequently, the small days of the past week will probably lead to big swings soon. Tomorrow’s FOMC announcement could be the start.
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 EURUSD 240 minute Forex chart is in a trading range.
It therefore neutral, and it has reasonable buy and sell signals. The bulls see a double bottom in a broad bull channel. Yet, the bears see a small wedge lower high major trend reversal after a big wedge top.
The 240 minute EURUSD chart is the same as it was yesterday. It is in the middle of its 4 week trading range. Since the trading range is only a 4 week pause in the bull trend on the weekly chart, it is the early stage of forming a bull flag.
Yet, the weekly chart is at major resistance and has a series of buy climaxes. It is therefore likely that the bull flag will pull back deeper and last more bars. Currently, the August 17 low is the bottom of the developing bull flag. The odds favor a test of that low whether or not there is a brief new high over the next couple of weeks. That would be about a 400 pip pullback from the current high. Since a typical pullback after a buy climax lasts 10 or more bars, the EURUSD will probably be mostly sideways to down over the next month.
Overnight EURUSD Forex trading
The 5 minute chart has been in 50 pip range overnight. Since it has rallied to the middle of the 4 week range, it probably will stall here. This is especially true because tomorrow has an FOMC announcement. That is often a catalyst for a big move up or down. Markets usually enter trading ranges before catalysts. Therefore day traders today will expect to be scalping, unless there is a surprise strong breakout.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Today failed to break above yesterday’s high. It was a small inside day and it closed below yesterday’s close.
The Emini had been making new all-time highs every day for the past 5 days. In addition, the daily chart had 7 consecutive bull days. Yesterday was a doji and therefore a weaker day. Today was weaker still because it had a bear body and it failed to break above yesterday’s highs.
The overriding factor in the market is tomorrow’s 11 a.m. FOMC announcement. The odds are that it will lead to either a strong bull breakout or a reversal down. There is a 50% chance that the initial move will reverse within the 1st few bars.
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. We offer a 2 day free trial.
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.
