Trump’s trade war with China creating test of March low
Updated 6:45 a.m.
The Emini reversed down from a Low 2 bear flag at the EMA on the open. The first leg up was in yesterday’s small, late trading range. However, the 1st bar broke above yesterday’s bear channel. It was big enough to weaken the bear case and create confusion. Therefore, the odds favor an early trading range. This is true even if the bears break below yesterday’s low and get a selloff for about an hour. That gap up and strong bull bar on the open reduce the chance of a big bear trend day. The bears have only about a 25% chance of a big bear trend day.
At the moment, the Emini is Always In Short. However, the selloff will probably last less than an hour. The bulls will then likely get a trading range or a swing up for at least a couple of hours.
Pre-Open market analysis
The Emini gapped down and sold off yesterday, but reversed up strongly after 2 hours. The selloff resumed and the Emini collapsed to below the March 1 low. That low is the neck line of a big double top on the daily chart. The bears want follow-through selling today, and the bulls want the bear breakout to fail.
If there is a reversal up, the daily chart will have an expanding triangle that began with the February 21 low. If there is only a pause for a few days, yesterday’s big down day will probably lead to a 2nd leg down. Furthermore, yesterday’s gap could be a measuring gap. The target would be just below 2600 and around the February 6 low.
Big trend days like yesterday are mostly technical. Much of the selling is from option selling firms who are hedging as the market falls. That means they usually are not the start of a trend and that the fundamentals have not changed.
Since yesterday was a sell climax, there is a 50% chance of follow-through selling on the open, but only a 25% chance of a big bear trend day. Finally, there is a 75% chance of at least 2 hours of sideways to up trading that begins by the end of the 2nd hour.
Weekly support and resistance
Today is Friday and the Emini is far below the open of the week. Therefore, the bulls will probably be unable to significantly change the appearance of this week on the weekly chart. This week is a good bear bar on the weekly chart. The bears need follow-through selling next week if they are to test the February low.
Since today is Friday, weekly support and resistance are magnets, especially in the final hour. The bears want the Emini to close on the low of the week. Moreover, they want it to close below the March 1 low. At a minimum, they want it to close below the 2017 close of 2678.00.
The bulls want the opposite. At a minimum, they want a close back above the March 1 low, and they want the day to close on its high. That would put a conspicuous tail on the bottom of the bar on the weekly chart, weakening the bear case.
Overnight Emini Globex trading
The Emini is up 4 points in the Globex market. Yesterday ended with a sell climax and then a 6 bar tight trading range. Toady might open in that range. If there is a bear breakout, that range could be the final bear flag. Traders will therefore look for an early reversal up from any selloff.
Since yesterday’s bear channel was tight, the 1st rally today will probably be a minor reversal. The bulls will need some kind of double bottom, Final Flag reversal, or big wedge bottom before they can get a trend up. Because yesterday was so extreme, the odds favor a reversal up at some point today. It could be simply a bull leg in a trading range day, or a bull trend.
Even though the probability of a big bear day is only 25%, if traders see a series of big bear bars, they will swing trade their shorts. Most likely, there will be an early rally, whether or not there is 1st a 5 – 10 bar selloff. Then, the Emini will probably enter a trading range.
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 daily Forex chart is in the middle of a 3 month trading range and now is in a 6 bar tight trading range. The bulls have a slight probability advantage because the trend was up before the range began.
The EURUSD daily Forex chart is in a 6 day tight trading range in the middle of a 3 month trading range. The bulls hope that yesterday was a pullback from a break above a 3 week wedge bull flag. However, they only have a minimal advantage. Until there is a breakout, there is no breakout.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart rallied 40 pips overnight. The bears will get out above yesterday’s high. Since the chart is intensely sideways, day traders are scalping for 10 – 30 pips. However, a tight trading range is a breakout mode setup. Therefore, the odds are that there will be a breakout up or down within a week or so.
It is a mistake to assume that the probability significantly favors the bulls because of the bull trend on the weekly chart. This is because the 5 minute chart could easily fall 150 pips and still be in the 3 month range. Day traders will bet on reversals until there is a breakout.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The bulls had a bull reversal day, and it failed. The bears got a strong breakout and more than a measured move down.
Today was the 3rd consecutive day when a bull reversal day failed. The bears again got trend resumption down. Since today’s huge bear day confirms yesterday’s bear breakout, the odds are that the bears will sell the 1st reversal up next week. The bulls will want at least a micro double bottom before buying. The odds favor lower prices.
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.
