Posted 7:03 a.m.
The Emini found buyers below yesterday’s low, which was likely, but the bulls have not yet been able to get a strong bull breakout. The early trading is a continuation of Friday’s trading range price action, and it increases the chances of a lot of trading range price action today. While it is still possible that the bears can get a strong breakout below Friday’s low, they have tried twice already and failed. This reduces the odds of a bear breakout, at least for the next couple of hours.
The bulls have not yet been able to break strongly above yesterday’s bear channel, but are trying. Even if they succeed in having a trend up for several hours, the rally will probably become a bull leg in a 60 minute trading range.
With this early trading range price action following yesterday’s trading range price action, there will probably be a trading range today. This means that there will probably be both a swing up and down. The Emini is Always In Long, but it could still quickly fall below yesterday’s low. This is a BOM BreakOut Mode open. There is both a small double top and bottom. Traders will look for a measured move up or down. However, they then expect a leg in the opposite direction later in the day because a trading range day is likely. Traders are waiting to see the direction of the 1st leg in the trading range.
It is always possible that any day can become a strong trend day. However, the probability is less in this context and with this early price action. The odds favor a swing in both directions today.
Pre-Open Market Analysis
S&P 500 Emini: Learn how to trade an expanding triangle
Although Friday was a strong sell signal bar on the daily chart for a nested expanding triangle top, the channel up from the February 11 low was tight, and the 2 day rally was strong. This makes the reversal more likely to be minor. Traders can take the sell, but the odds are that there are buyers not far below and that there will be at least one more new high in the rally.
This is especially true since the monthly candlestick closes today and February will be a buy signal bar in a bull trend on the monthly chart. There is a 60% chance that March will trigger the buy by going above the February high. However, there is also a 60% chance that once the buy triggers, the Emini will fall below the bottom of the 2 year trading range before it breaks above the top.
The 2 day buy climax on the 60 minute chart will probably be followed by a TBTL correction. Although the selloff has already lasted 7 bars, it was in a tight channel and it will therefore probably be the 1st of 2 legs sideways to down. This means that whatever bounce that might come today or tomorrow will probably be sold for one more test down. The correction will create a bull flag, and it will probably be followed by a test above the February high.
The context is great for the bears. The Emini daily chart is in a bear channel, and this rally is a 50% correction. There is also a nested expanding triangle top and a good sell signal bar. The bear trend to below the 2 year low might have begun. However, that has a 40% probability. It is more likely that this reversal will be minor and create a bull flag on the 60 minute and daily charts.
The Emini is down 8 points with 30 minutes to go before the NYSE open. Today might open with a small gap down. It is possible that the pullback might go all of the way to the bottom of the expanding triangle, which was Wednesday’s low around 1890, and then form an expanding triangle bull flag. It is more likely that the pullback will not be that deep or last that long. However, if there is a strong bear breakout, traders will swing their short trades for a test of that support level.
Friday was in a broad bear channel, which is similar to a trading range that is sloped down. Today will probably evolve into a trading range. That bear channel is a bull flag. There is a 40% chance of a successful bear breakout below the bull flag and then a measured move down.
Forex: Best trading strategies
The daily chart of the EURUSD has fallen in a series of sell climaxes back into the January/December trading range. Since it went sideways for 2 months at this price before, it will probably soon go sideways again. This is especially true after consecutive sell climaxes, which are usually followed by a TBTL Ten Bar Two Leg sideways to up correction. The next support is the January 21 higher low around 1.0770, and then the bottom of the range around 1.0710.
There is a 70% chance of a trading range beginning between the current price and those support levels. Bulls will begin to buy bear closes and below prior minor lows, betting that the sell climax will end and that a trading range will begin. The selloff was about 600 pips. The first pullback will probably be at least a third of that, or about 200 pips.
The math is interesting here because the bulls who are buying new lows and putting a stop below the bottom of the range are risking about 170 pips to make 200 pips. Some are buying small and scaling in. Others are waiting either for a 60 minute major trend reversal or for a bull breakout, which is always a higher probability trade, but there is left profit remaining and the risk is bigger (the stop is further below).
Bears continue to sell as long as the momentum down continues, but they know that they are selling at the bottom of a sell climax near resistance. They will be very quick to buy if the EURUSD begins to bounce. Day traders can continue to sell rallies, but the odds will soon shift in favor of the bulls. Traders will begin to look for buy setups and strong bull breakouts. Unless there is a strong bull breakout most bulls and bears will scalp, betting on a trading range. However, the odds are that there will be a 200 pip rally starting this week.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
After a parabolic buy climax, the Emini reversed down from a lower high major trend reversal.
The Emini triggered the sell signal on the daily chart by falling below Friday’s low. However, the bull channel of the past 2 weeks is tight, and therefore the odds are that the selloff will be limited to a pullback for a few days.
Today was the last day of the month and February became a buy signal bar. There is a 60% chance that March will trigger the buy by going above the February high. There is also a 60% chance that the bull breakout will fail and the Emini will trade below the bottom of the 2 year trading range before it trades above the top. Unless the selling is relentless over the next few days, the odds are that this selloff will be a bull flag on the daily chart and be followed by a move above February’s high.
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.
