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After yesterday’s strong rally, today continued the endless pullback. It began with doji bars just above the 60 minute 20 bar EMA, and around a 50% pullback. Because the selloff from yesterday’s high was in a tight bear channel, the 1st reversal up will probably be minor. Since yesterday was in a strong bull trend and this selloff is the first reversal down, it probably is minor as well. Therefore the odds favor a leg up that will stall around moving average and then a test down.
The bears need consecutive big bear bars closing far below the 20 bar 60 minute moving average before traders will believe that yesterday’s rally has failed. The bulls probably need a double bottom over 10 – 20 bars before traders believe that the bull trend has resumed. Consequently, the odds favor a trading range for the 1st hour or two. Traders will look for reversals.
Pre-Open market analysis
The Emini broke above a 6 day bull flag yesterday. This triggered a buy signal on the daily chart. Yet, the buy climaxes on the daily, weekly, and monthly charts have never been this extreme. Consequently, the odds favor a 5% correction beginning by the end of the year.
The Emini has been in a tight range for several weeks. The bulls therefore need follow-through buying today or soon to make traders believe that the bull trend is resuming. While the odds always favor higher prices in a bull trend, the bull trend needs a strong breakout above the range before traders will believe that it has resumed. If today is a bear trend day, then the odds are that the 3 week trading range will continue.
Weekly support and resistance
Since today is Friday, weekly support and resistance can be important, especially in the final hour. Because the weekly chart has been in a tight range for 4 weeks, there are several magnets nearby. These include this week’s and last week’s high, last week’s close, and this week’s open.
Overnight Emini Globex trading
The Emini is down 1 point in the Globex session. Yesterday’s rally was strong. The odds therefore favor follow-through buying today. If the bulls get a strong bull trend day today, the odds will favor a resumption of the yearlong bull trend. Traders would then expect a strong breakout above the month long range, and possibly a measured move up to around 2650.
If today has a bear body on the daily chart, it would represent a lack of follow-through buying. It would therefore make a continuation of the trading range likely. Consequently, today has important implications for what to expect over the next few week’s. Since trading ranges disappoint bulls and bears, the bulls will probably not be happy with any rally today.
Today’s close is important. Even a small bull body helps the bulls and a small bear body helps the bears. Therefore, the open of the day will be a magnet in the final 2 hours. If the market is within 4 points of today’s open, traders will look for a reversal back toward it. The bulls would buy a reversal up to try to get the close above the open and maybe near the high. The bears will try to get a close below the open, and possibly at the day’s low.
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
After Tuesday’s big bull trend day on the EURUSD daily Forex chart, there has been no immediate strong follow-through buying. In addition, the rally stalled just below the October 8 major lower high. As a result, the chart is still in a broad bear channel as well as a trading range.
The EURUSD daily Forex chart has been in a trading range for 4 months. It is therefore also in a bull trend and a bear trend. The bulls rallied strongly on Tuesday from the bottom of the trading range and the bottom of a 3 month wedge bull flag. The bears stopped the bulls just below a major lower high. Consequently, the 3 month bear channel is still in effect. If the bears can get a strong reversal down, this rally will be the 2nd top in a double top bear flag.
The rally was strong enough to make a 2nd leg sideways to up likely. Because there has been no follow-through buying, the bulls are disappointed. They know that a continued trading range is more likely that a resumption of the year long bull trend. Yet, they will buy a pullback, even if it is deep.
Bull flag on the weekly chart
The bears see the trading range on the daily chart. They know that legs in trading ranges often go below support and then reverse up, or above resistance and then reverse down. Therefore, they will look for a reversal down if this rally gets above the October 12 major lower high.
Furthermore, they see that the 3 month bear channel on the weekly chart (not shown) is tight. That usually means that the 1st reversal up will be minor. The bears therefore expect a test down beginning in the next few weeks.
However, they also know that the weekly chart is in a strong bull trend. They therefore will buy back their shorts on a test of the 4 month trading range low. They will probably be happy with a quick profit. At that point, the bulls would have a double bottom at the moving average. That would have a higher probability of leading to a test of the top of the 4 month range.
The year long rally failed at the resistance at the bottom of a 10 year range on the monthly chart (not shown). Consequently any rally over the next couple of months will probably fail there again. As a result, the 4 month trading range will probably continue for at least another 1 – 2 months.
Overnight EURUSD Forex trading
The 5 minute chart has been sideways for 3 days. After the strong buy climax on Tuesday and the reversal down on Wednesday, the odds favor more sideways to down trading for at least a couple of days. Therefore, day traders will be looking for scalps.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini was a small trading range day and an inside day. Since it had a bear body and there is a buy climax, it is a sell signal bar.
Today was bad follow-through day for the bulls after yesterday’s big bull day. There was a small bear breakout at the end of the day. The Emini is still withing is month long trading range with no sign yet that it is ready to breakout. The bear close made it a small bear inside day. Since there is a buy climax, it is a sell signal bar for Monday.
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.
