Posted 8:06 a.m.
The Emini opened again in a tight trading range, which increased the chances of a lot of trading range price action today. The odds are that the Emini will rally to test the 1969 lower high by the end of the week. It is in a trading range on the daily chart, and after 4 days down, the odds start to go up for at least a couple of days up.
When the market is in breakout mode on the open, the bears prefer to sell below a strong bear reversal bar near the top, and the bulls want to buy above a strong reversal bar near the bottom. If neither gets that, they instead wait for a strong breakout and then enter, looking for a measured move, based on the height of the opening range.
The Emini began with an opening reversal up from the moving average, but the rally was weak. This increased the chances that it would be a bull leg in what would become a trading range. At the moment, the Emini is Always In Long and in a tight bull channel. However, the follow-through buying has been weak and the odds are that there will be a swing down starting in the 2nd or 3rd hour. Alternatively, the bulls will need a strong breakout above the high for a possible measuring gap, but that is less likely. As long as the channel is tight, bulls will continue to buy below bars. Because the follow-through has been bad, they will mostly scalp. Bears are selling above for scalps. The odds are that there will be a swing down within the next hour or so, and that today will be another trading range day.
Pre-Open Market Analysis for the S&P500 Emini: Learn how to trade the markets after a Globex bull trend reversal
Since the Emini is in a trading range on the daily charts, traders should expect that every strong move up and down will disappoint traders expecting a breakout into a trend. The Emini has sold off for 4 days, but reversed up strongly in the Globex session after a big selloff in Asia last night, and rallied about 30 points above its Globex low.
At the moment, it is up about 3 points above yesterday’s close. It is possible that it might gap up today, which would create an island bottom. Although this might form an early low of the day and a bull trend day, if there is a gap up and it is only a few points, it is more likely to close in the first hour. If it stays open and rallies, it will probably close within a couple of weeks, because that is what happens to almost all gaps in trading ranges.
The overnight bull reversal and rally on the 60 minute chart in the Globex market were strong enough so that the first pullback will probably be bought and it will be followed by at least one more leg up. If the Emini can hold above 1940, the next target is the lower high at 1969. That is probably too far to reach in one day.
The bears want any rally this week to form a lower high below that prior lower high. They would then see the selloff from last week’s reversal down as a bear channel. If instead the Emini rallies above that lower high, the bears will try to keep any rally from going above last week’s high. They would then see the rally over the next week as a right shoulder in a head and shoulders top bear flag.
Because the Emini is in a trading range on the daily and 60 minute charts, the bulls and bears both constantly have buy and sell setups, and it is reasonable for the bulls to be holding long and for the bears to be holding short. Each has about a 40% probability of a profitable swing trade if they are patient and use the correct stop, which has to be far. That adds up to 80%. The other 20% is because sometimes the Emini will run far and hit one of those distant stops, and then reversal.
In general, when the Emini is in a trading range, traders should be trading for fast money. If they willing to hold positions overnight, they should be looking to take profits in 1 – 5 days. Once there is a clear, strong breakout up or down, they then can quickly enter in the direction of the breakout and try to hold for weeks, if the breakout is strong. There is a small chance that the selloff will reach the 1600 area, and if it does, it might take a month or more to get there. There is even a smaller chance of a resumption of the bull trend and a strong breakout above the all-time high. The probability of this will go up substantially after the bears get at least one more leg down after the August collapse.
So what will the Emini do today? It sold off for 4 days in a trading range. The odds are that it will soon bounce for a day or two. The overnight Globex reversal was strong enough so that traders know that the odds are that the first pullback will be bought and a 2nd leg up is likely. There is an obvious resistance level at the 1969 lower high.
These factors make a rally today or tomorrow likely, and they limit the chance of a big selloff today. Any selloff today will probably hold above the Globex low of 1910.50. If the Emini gets down there today or tomorrow, it will probably bounce at least 20 points as it tries to form a double bottom. It is more likely that any selloff today or tomorrow will be bought before it reaches that low, and that it will be followed by a 2nd leg up on the 60 minute chart. All of this means that any downside today will be limited and the Emini will probably try to rally up to around 1969 over the next few days.
Forex: Best trading strategies
As I mentioned yesterday, the Euro was getting oversold on the 60 minute chart and the bear channel was likely to transform into a trading range. The process began overnight. A fairly tight 60 minute trading range in the EURUSD becomes a scalper’s market on the 5 minute chart. Online day traders who trade Forex markets for a living will not trust strong breakouts up or down, and will instead look for reversals. Because they do not expect any move to go far, they will also scalp. If a move is strong, they will wait for a 2nd entry. They will also be willing to enter with limit orders, selling above prior highs and buying below prior lows, and many will also scale in, looking for scalps.
This is difficult trading for those learning how to trade the market, and there will probably be fewer opportunities for them today. In general, when the market is in a trading range, a beginning day trader should wait for second entries, like buying a reversal up from a double bottom near the bottom of the range or selling a reversal down from a double top near the top of the range.
A trading range can end at any time. If there is a strong breakout up or down and it has strong follow-through, day traders will look to swing trade for 40 or more pips. The price action in the overnight session makes trading range trading more likely today in the major Forex crosses.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini had a weak rally on the open,and then a strong reversal down. The rally that followed failed to reach a new high and the day became a trading range day.
The Emini failed to hold its brief opening rally above last week’s low. The daily chart is deciding whether to test down to the September 1 low or to Monday’s lower high. After 2 trading range day’s in the middle of a month long trading range, the Emini is neutral near-term. However, it is still in a bear flag on the daily chart, and there is a 60% chance of a 2nd leg down. The bear can resume at any time, but there is no clear evidence that it has yet.
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.
