Posted 7:29 a.m.
The Emini had a trend from the open bear trend at the top of the 5 and 60 minute channel and below the 1991 lower high. The selloff had reasonable follow-through after each big bear bar and the Emini is Always In Short. There is a 70% chance that we have seen the high of the day. Because the Emini has had 3 small pushes down to the moving average, it might bounce for 5 – 10 bars. However, the reversal up will probably be minor and the best the bulls can reasonably hope to accomplish is to halt the selling and create a trading range. Bears will sell a rally and hope for a lower high major trend reversal.
However, the momentum up has been so strong that the downside is probably limited. There is a 70% chance that the Emini will test the bottom of the channel, which is now around 1972, but it can get there by going sideways instead of down. The odds are that the Emini will be in a trading range for the next hour or two, even though it is still Always In Short.
Day traders should focus on selling rallies until a trading range has clearly developed. If one does begin to form, day traders will switch to buying low, selling high, and scalping. If the Emini enters a trading range, bulls will look for a major trend reversal to buy, and bears will look to sell a double top bear flag. It will be in breakout mode, and day traders will be ready for either trend reversal up or trend reversal down later in the day.
Pre-Open Market Analysis
S&P 500 Emini: Price action trading strategies in a buy climax
The Emini is being vacuumed up to the August 27 lower high of 1991.00 because when something is obvious, it happens quickly. That is major resistance, and the day trading tip is to watch for a breakout or a reversal. The bears want a double top lower high and the bulls want a breakout and then a test of the 2050 bottom of the 7 month trading range. The 5 minute chart is in a buy climax. The odds are that the rally will stall for a day or two at this level before either the bulls or bears will.
The Emini has been in a trading range for a month and it is now at the top. It will probably go sideways to down today or tomorrow. Bulls will see this big rally as a gift and they will take profits. If they take profits, they will not look to buy again one hour later and 10 points lower. They usually wait a day or two to see how strong the bears are. If the bears are not able to reverse the Emini down strongly, the bulls will buy again because they will be more confident that the bears will be unable to prevent the breakout. If the bears are strong, the bulls will wait to buy lower.
The rally has been so strong on the 60 minute chart that a big reversal down is unlikely. However, the market could easily form a 30 point trading range, like it did at this price on August 27. The Globex Emini is up 21 points and the Emini will gap up big today. However, it is in a buy climax on the 5 minute chart and it is near resistance on the daily chart. Although there might be an hour or two of follow-through buying on the open that could go up to or a little above the 1991.00 lower high, the odds are that there will be at least a couple of hours of sideways to down trading that begins by the end of the 2nd hour.
It is possible that today could break strongly above that major lower high, but that is not what markets typically do. They more commonly stall at major resistance and form a trading range. This is what is most likely over the next day or two. The trading range is a breakout mode candlestick pattern, and the probability for the bulls falls to about the same as that for the bears.
Online day traders should be ready to buy a rally on the open for a quick swing up. If there is a rally, the bulls will probably will be quick to take profits, and the Emini will probably trade sideways to down for at least a couple of hours and maybe for a day or two. The bears will be ready for the big gap open to fail. If the day begins with 1 – 3 big bear bars closing on their lows, today could form an early high of the day, and the bears might get a bear trend day.
The 3 day rally is in a tight channel on the 60 minute chart. This means that the bulls have been so confident of higher prices that they bought even very small pullbacks. This eagerness by the bulls reduces the chances of a big reversal down on the 60 minute chart, and the first selloff will probably be a minor reversal that leads to a trading range instead of a bear swing.
Forex: Best trading strategies
The Dollar was strong overnight, especially against the Yen, but all Forex markets are in trading ranges on the 60 minute chart. Those who trade Forex markets for a living know that the rally in the USDJPY is a buy vacuum test of resistance. The resistance is at the 20 day exponential moving average and the September 2 lower high (the market is testing both at the moment), and then at the August 31 lower high, which is 60 pips higher.
The overnight rally is a spike and channel candlestick pattern, and the 3rd push up began a couple of hours ago on the 5 minute chart. The USDJPY is now at the top of the 5 minute channel. However, this 3rd leg up is stronger than the prior two and it increases the chances for additional legs up. More likely, it will try to create a minor reversal down, and the best the bears can hope for over the next couple of hours is a pullback. A bear trend today is unlikely. The odds are that traders will buy the pullback for a swing or scalp. If the pullback is deep enough, bears will begin to be more willing to sell rallies, and this could result in a trading range today.
The 60 minute chart of the EURUSD is breaking out of a week long bear flag, but the bear channel is still above the August 19 bottom of the bull swing. Also, the breakout is weak, which is a sign that the bears are becoming exhausted, and it increases the chances that it will not fall very far before the bears take profits and the bulls begin to buy.
Although the 5 minute chart had a strong bear reversal in the European session, the break below the overnight low has stalled. This means that the candlestick pattern over the next couple of hours will probably be a tight trading range. The market will then decide whether the breakout will continue or reverse. With the past week being in a tight trading range, the odds are that the breakout will fail.
However, the swings have been small for the past week, and they will probably be small again today. This is a limit order market and traders learning how to trade the markets should not trade it. Professional day traders will buy new lows and scale in lower, sell rallies and scale in higher, and take Forex scalps of about 10 pips. This is too difficult for beginners to do profitably, and they should wait.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini formed a trend from the open bear trend. After a midday trading range, the bears got trend resumption down to below yesterday’s low, making today an outside down day.
Although the Emini did not quite reach the 60 minute lower high, it still sold off strongly from a double top bear flag on the 60 minute and daily charts. It is still in the trading range of the past 2 weeks, but any strong reversal down like this can be the start of the 2nd leg down from last month’s huge bear breakout. The daily chart is in a bear trend, and the odds are that the Emini will fall for at least a new low. However, it might remain in this trading range for months and even rally to 2050 before having its trend resumption down.
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.
