Emini in breakout mode awaiting Trump’s response to Syria and China
Updated 6:41 a.m.
The Emini had a big gap up. It opened within the 3 hour trading range that formed at yesterday’s high. The odds are that it will be sideways for the 1st hour until it gets closer to the EMA, and then decide on the direction of the 1st swing.
A big gap up increases the chance of a trend day. Furthermore, it increases the chance of a bull trend day. However, the bulls need a breakout far above yesterday’s high before traders believe that the bull trend on the daily chart is resuming. Therefore, yesterday’s high is important resistance.
At the moment, the Emini is Always In Long, but in yesterday’s tight trading range. Even though the 1st bar was a bear bar, the odds favor an attempt to get above yesterday’s high. The bears want a reversal down from there. If they get a good sell signal bar in the 1st hour, it could be a reasonable sell setup. Most likely, this will be a trading range open for the 1st hour. The odds are against a big bear day after a strong reversal up.
Pre-Open market analysis
The Emini yesterday rallied in a small pullback bull trend. There was a late selloff from just below Friday’s high, which converted the day into a bear trend reversal day. However, the 12 day tight trading range is about as likely to have a bull breakout as a breakout. Until there is a breakout, traders expect legs up and down to continue to reverse every 1 – 3 days.
Nothing has changed on the daily chart. The bears want a break below last week’s low. They see a double top bear flag on the daily chart over the past 2 weeks. When a market turns down from a double top, it usually does so in a bear channel. That means it typically has 1 – 2 day rallies along the way. However, the bears will only give up if there is a strong break above the double top of the March 27 and April 5 highs.
Overnight Emini Globex trading
The Emini is up 29 points in the Globex market. It will therefore gap above yesterday’s close. In addition, the gap up will reverse yesterday’s late selloff.
In the Globex session, the Emini reversed up sharply and then went sideways for hours. This is a reversal and then a bull flag. It is therefore a cup and handle pattern. There is a 60% chance of at least a small 2nd leg up in the day session. The bulls need a strong break above last week’s high to convince traders that the bull trend on the monthly chart is resuming.
Gap up increases the chance of a trend day up or down
A big gap up open will mean that the Emini is far above the 5 minute EMA. When that is the case, the bulls tend to hesitate. They prefer to buy closer to the average price. As a result, there is a 50% chance of a trading range for the 1st hour. Once the Emini gets near the EMA, the bulls will look for an opening reversal up. The bears, however, want a strong break below the EMA and then a selloff down to yesterday’s close.
Today’s gap up will make yesterday’s low a higher low major trend reversal on the 60 minute chart. However, the Emini has been in a tight trading range for 12 days. Until there is a strong breakout above or below, the odds favor reversals rather than breakouts. Consequently, if there is rally today, the bulls will be quick to exit if it begins to reverse.
The bears want a reversal down from below yesterday’s high. That would create a 4 day triangle within the 12 day range. However, that is not especially important. The 12 day range is the dominant feature.
They would be just as happy if there was a reversal down from above yesterday’s high. They simply need a reversal down now that the Emini is near the top of the range. Therefore, they will look for a bear reversal day. Reversals often come after 2 – 3 hours. Hence, if there is not a selloff on the open, that is the next time when they will look for a top.
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 3 day rally in trading range
The EURUSD daily Forex chart has rallied for 3 days. Yet, it is in the middle of a 4 month trading range and there is no sign of a breakout. The bears want a lower high and a strong break below the April 6 low. However, the bulls want a strong breakout above the March 27 high.
The EURUSD daily Forex chart has rallied for 3 days after a failed breakout below the March 20 low. It continues to have 1 – 2 week legs up and down.
While the bears want a double top bear flag with the April 2 high, this rally is too far above that high. Traders are paying more attention now to the March 27 major lower high. They will see a reversal down at this point more as a lower high in a broad bear channel that began on February 16.
The chart is obviously also in a trading range. Yet, if there is a strong break below the March 1 low, traders will say that the bear trend began with the February 16 high.
A trading range also is in a bull trend. If there is a strong break above the March 27 high, traders will say that the bull trend resumption began with the March 1 low. My 80% rule says that 80% of breakout attempts in trading ranges fail. Traders will continue to look for reversals until there is a clear, strong breakout above or below the 4 month range.
At some point there will be a pair of strong trend bars that break beyond the 4 month range. The breakout can be up or down. Once that happens, traders will switch their trading style. They will begin to hold onto positions for a 300 pip measured move.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart rallied 80 pips overnight. It is breaking above the April 2 lower high. The bulls want a 150 pip measured move up.
However, trading ranges constantly disappoint both bulls and bears. Therefore, the overnight rally is more likely to stall today. A trading range today is more likely than a continued rally.
Look at the 60 minute chart. Breakouts up and down last one or 2 bars and then lead to tight ranges for 10 or more bars. That is what is likely today. Consequently, the 5 minute chart is likely to be sideways in a 30 – 50 pip range.
There are 2 alternatives with a lower probability. If the rally of the past hour continues, the odds of a test of the March 27 high this week go up. That is another 100 pips above. Less likely, today will reverse down 50 pips. Hence, today would be a sell signal bar on the daily chart. The odds would then favor a test of the April 6 low. This is about 100 pips below today’s low.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
After a big gap up, the Emini went sideways today. It is just below resistance on the daily chart.
The Emini was in a trading range day today after gapping up. It is just below the top of a 3 week trading range and at the 20 day EMA. The bulls need a strong breakout and the bears want a reversal down. The odds favor a continuation of today’s range tomorrow.
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.
