Posted 7:31 a.m.
The Emini began with a series of bear trend bars after its gap down, but because the past 4 days have been mostly sideways and the Emini is near support, bears know that a reversal up and low of the day can happen at any time. This makes them quick to take profits and it increases the chances of a trading range soon, despite the initial selloff and the targets below. The targets are the 1900 and 1890 bottom of the range, the bottom of the 60 minute channel, and the 1900 round number.
Although the Emini is Always In Short, the 6 doji bar pullback from the initial leg down, the bull bar with tails for the 1st bar, and the trading range price action over the past 4 days all weaken the bear case. They increase the chances that this swing down will be a bear leg in what will become a trading range. While the bears are in control and this is a bear trend so far, this two-sided price action in a market that has had a lot of trading range price action makes it more likely that the selling will last only an hour or two before there is a trading range or even a swing up.
Bear so far have been taking profits quickly, and bull scalpers have been able to make money. While it is possible that today could be a bear trend day all day, and there is no bottom yet, day traders will be ready to buy if a bottom forms or if there is a strong bull breakout with follow-through. The odds are against a strong bear trend day at the moment.
Pre-Open Market Analysis
S&P 500 Emini: Learn how to trade the markets near the bottom of a trading range
The Emini sold off in the Globex market and is getting close to the bottom of the September trading range, which is around 1890 and 1900. The selloff was in 3 pushes on the 60 minute chart, and the bulls hope that it will reverse up from a wedge bottom at the bottom of the September range. If it does, they will see this as a double bottom higher low major trend reversal on the daily chart, and they will hope for a new all-time high.
Major trend reversals have about a 40% chance of leading to a big swing, and that is the case here as well. Because the daily chart is in a bear trend and there are still targets below, there is still a 60% chance of a bear breakout below the month long trading range and then at least 2nd leg down. There is also at least a 50% chance of a test of the October 2014 low.
Although the Emini might continue down to the monthly trendline and the March 2000 high, both in the 1600s, the odds of that at the moment are about 20%. A strong bear breakout below the bear low, if one comes, would quickly increase that possibility.
Because the selloff on the 60 minute Globex and day session charts is in its 3rd push down to near a support level, the Emini will probably begin to go sideways today or tomorrow. What are the chances that the bear trend on the daily chart has begun its 2nd leg down? Maybe 50%. There is still a 50% chance of s strong bounce up from the bottom of the trading range for one more bear rally attempt before the bear trend resumes. If there is a rally for a couple of weeks, bears will look at it as a lower high, and as a right shoulder in a head and shoulders top bear flag.
The Emini is down 18 points in the Globex session and it will probably gap down. Because it is near the bottom of the trading range and in its 3rd push down, the probability is that the downside will be limited today. If the bear trend is resuming on the daily chart, the bears might be able to achieve the low probability outcome of a strong bear trend day. If today does sell off strongly with a big bear breakout and follow-through, or relentlessly in a small pullback bear trend, online day traders should swing trade their shorts.
It is more likely that any initial selling will be limited to an hour or so, and then the 60 minute chart will either transition into a trading range or begin to reverse up. Because the Emini has been in a trading range for a month and most of the days have been trading range days, today is likely to have a lot of trading range price action whether it trends up or down. Traders will be quick to take profits, unless there is a strong trend day up or down.
The context is good for the bulls and the momentum is good for the bears. Context, meaning support and resistance, is usually the most important force on the chart. The odds are that the selling will be limited today, despite the big gap down. There is room down to the 1900 area, but 1890 to 1900 is support since it has been the bottom of the range for a month.
Also, look at the bars in the selloff over the past week on the daily chart. Where are the consecutive big bear bars? This leg down looks more like a bear leg in a trading range than in a bear trend.
Forex: Best trading strategies
As I mention Tuesday, the EURUSD 60 minute chart was oversold and was likely to rally for a couple of days. The rally continued overnight and is now getting close to a 50% pullback from the selloff of the past couple of weeks, which is around 1.2850. It is in the gap down area of September 21, and markets often go sideways once they are back to a gap area. A gap in not a traditional gap, like one sees on a stock chart. Instead, it is any space between support and resistance. It is a breakout. There was a gap between the September 18 low of 1.1268 breakout point and the pullback of September 21 to 1.1216. The EURUSD might begin to go sideways here to fill in that gap.
Traders who trade Forex markets for a living see that the rally the two hour rally in Europe lacked consecutive big bull trend bars on the 5 minute chart. This increases the chances that the EURUSD will soon go sideways. This is especially true because the 2 day rally is more likely a bull leg in a trading range on the 60 minute chart and not the start of a bull trend. Although there is no clear top yet to the rally, and bulls will still swing trade part of their position, the rally will probably evolve into a trading range today. Traders learning how to trade the markets have to be careful to not let their hope for a big bull trend not get in the way of their objectivity. They should be quick to transition to trading range trading today if the rally stalls, which it probably will.
The Canadian Dollar was weak overnight. After a 2 month trading range on the daily chart, the bull trend is resuming. However, because that trading range came late in a bull trend, and the bull breakout of the past week is forming the 3rd push up from the May low, this might be the final rally before a bigger pullback, like the one in April. There is no top yet and the trend is strong on the 5 and 60 minute charts.
The 5 minute chart is getting climactic and the 60 minute chart is getting a parabolic bull breakout above a broad 60 minute bull channel. While this can last a long time, when a bull trend accelerates late in a trend, it is often a sign of panic short covering. Once the final weak bears buy back their shorts, there can be a correction that can last for a couple of days.
A bull trend usually does not reverse into a bear trend. The best the bears can reasonably hope to see over the next few days is a bear leg in a trading range. The bulls know this and that is why they are still buying, despite the ongoing buy climax. They are confident that the first reversal down will be bought. They will scale in when the reversal comes, confident of at least a 50% bounce and probably a test of the rally high. This will allow them to get out no worse than breakeven and probably with a profit, no matter when their final buy during the buy climax was.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini sold off on the open to test 1900 and the bottom of the month long trading range. It reversed up from a small wedge bottom and then from a higher low major trend reversal.
Tomorrow is interesting. On the weekly chart, this week is the entry bar for the bears who sold below last week’s reversal bar at the moving average. The bulls want the week to close above last week’s low, which is the entry price for the short. The bears want the week to close tomorrow on its low, creating a strong sell entry bar. Both targets are within reach, and tomorrow’s price action can create a significant bar on the weekly chart. If the week closes on its high, then more sideways to up is likely. If it closes on its low, it would increase the odds that the bear trend on the daily chart is resuming.
Although today reversed up from a 60 minute wedge bottom at the bottom of the trading range, the 60 minute buy signal and wedge bottom were not impressive. This increases the chances that there will be a deep pullback tomorrow or Monday before the bulls get a 2nd leg up to test the 1970 top of the wedge bottom and possibly the top of the 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.
