I will post around 7:30 a.m.
The week or two before the 4th of July is usually the 2nd quietest time of the year (Christmas week is the quietest), and trading this week has had a lot of small legs and reversals, and many sideways bars with prominent tails. This is holiday trading. However, there are still occasional strong trends within holiday trading, and traders need to be ready for a breakout with follow-through in either direction. Without that, daytraders will continue to scalp trade mostly with limit orders.
The Emini has had several days in the past 2 weeks when the breakout did not come for 20 or more bars, and today might be another day like that. The bulls see the past 3 days as a wedge bull flag. The bulls need a breakout above today’s tight trading range and the moving average. Since yesterday was small, the bulls hope to reverse up from below yesterday’s low and to rally to above yesterday’s high, creating an outside up day.
The bears want a bear breakout below the bull flag and then a measured move down. Monday was a sell signal bar on the daily chart and today traded below its low, triggering the short. However, the reversal up on the 5 minute chart created a wedge bull flag. The bears need a bear breakout below the bull flag.
As I am writing, the bulls have had better signal bars and the market has reversed above yesterday’s low. It is barely Always In Long. However, if it does not get a bull breakout soon, it will break below the wedge bull flag and fall for a measured move down. Most daytraders should wait for the breakout in either direction. The only traders making money so far are limit order traders who are scalping for 1 point. Most traders should wait for a breakout with follow-through in either direction. Although this quiet open in holiday trading increases the chances of a small trading range day, daytraders always have to be ready for a strong trend. As I am writing, the bulls are trying for a bull breakout, but they will need follow-through buying to convince traders they are in control.
My thoughts before the open: Day trading for beginners in a trading range
The Emini overnight fell below the low of the past day sessions of the past 2 days, and it is down about 6 points now, around yesterday’s low. It is close enough to the all-time high for traders to expect a breakout within the next week or so, especially since the July 5 close is above the June 25 close about 75% of the time. There is end of quarter window dressing by funds and some euphoria going into the holiday and the summer. However, with the Emini as overbought as it is, it has an 80% chance of a 10% correction before the end of the year, and that correction can begin at any time, including when the Emini is seasonally strong.
Since the Emini is at resistance (the top of the trading range) and it has been sideways for 2 days, the odds are that it will be mostly sideways again today as it decides whether to breakout to a new high or reverse down. The price action trading strategy has over the past several months has been to expect a lot of trading range price action and limit order trading, but there is usually at least 1 or 2 four point swings every day. Although limit order scalp trading is tiring and difficult for beginners, it still can be profitable. Most daytraders should continue to look for the swing trades, even though this means that there will continue to be very little to do during most of the day until the daily range gets bigger.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini formed a double top with yesterday’s lower high and then had a measuring gap in the middle of the day. The Emini went sideways at the measured move projection. It sold off from a moving average gap bar, but that usually leads to the final bear leg before a major trend reversal attempt.
Today was in a bear trend with consecutive sell climaxes. This usually has a 75% chance of a 2 hour, 2 legged sideways to up move on the next day. The moving average gap bar usually leads to the final bear leg before an attempt at a major trend reversal. The odds are that there will be at least a 2 hour rally tomorrow. However, there often is follow-through selling in the first hour or two.
Can this be the start of the 10% correction? The Emini has had dozens of days like this in the past 6 months and all have been followed by rallies. Obviously, one will be the start of the correction, but any one of them is more likely to be bought. Yes, the Emini has an 80% chance of a 10% correction this year, but the bears need to do much more before traders believe that the correction has begun. Until it clearly has begun, it has not yet begun. There is a 75% chance that the close of July 5 will be above the close of June 25 (tomorrow). This lowers the chances that this reversal down will get very far. However, traders always have to be open to a big move up or down starting at any time. So far, this is just another trend day among dozens of trend days in the past 6 months, and like all of the others, it is not likely to have much follow-through selling over the next several days.
Best Forex trading strategies
Traders learning how to trade the markets can see that the Forex markets were quiet overnight. The Euro bounced a little and the dollar pulled back a little. On the 240 minute chart, the EURUSD is in a bear flag below the moving average after a strong leg down. However, it is also near the bottom of a week long trading range and the selloff could easily be a sell vacuum test of support.
The bears want a bear breakout below the bear flag, and then a leg down to the 1.080 neckline of the May and June month double top (more easily seen on the daily chart). The bulls want a bull breakout above the bear flag and a bull breakout of the double top. Even if there is a bull breakout of the 240 minute bear flag, the odds are still against the bull breakout of the double top. If the bulls get their rally, the double top will probably just evolve into a longer trading range, and then decide on the direction of the breakout.
The daily chart of the USDJPY is breaking out of a high 2 bull flag at the moving average. However, those trading Forex for a living see that the pullback to the moving average was strong and the buy signal bars were weak. Also, the tight trading range of the past 6 months developed late in a bull trend and it might be the final bull flag before a bigger correction. Because the reversal down in early June was strong and the reversal attempt back up has been weak, the chart created a Big Up, Big Down candlestick pattern and it is likely to go more sideways within the June tight trading range.
The daily chart of the USDCAD is in a cup and handle bull flag. This is simply a breakout pullback buy setup on the weekly chart. After the 4 year rally tested the 2009 high, there was a strong pullback to the weekly moving average. This was a bull flag. The May rally was a breakout of the bull flag, and it formed the cup. The pullback of the past 2 weeks is a pullback from that breakout, and it is the handle. However, since the rally is testing the 2009 high, the odds are that the USDCAD will go sideways for at least another month or so. It will then either break above the 2009 high, or form a double top with that high, which would result in the 10 year trading range continuing.
The 5 minute charts overnight did not have much movement for online currency trading. There was some weakness in the Pound, but not enough for swing traders to expect follow-through. The markets were mostly for scalping Forex trades, and that will probably continue today.
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.
