Posted 7:09 a.m.
The Emini gapped above yesterday’s high and formed an island bottom on the daily chart. However, the first bars were small and had small bodies with a lot of overlap. Although 4 consecutive bear bars made the market Always In Short, this was a limit order open, and traders were waiting for a strong breakout up or down before swing trading.
The bulls tried to reverse up after dipping below yesterday’s high, but the initial selloff was in a tight channel. This made the bull reversal a minor reversal. With so many bars having small bodies and big tails, the odds are that the selloff will become a bear leg in a trading range. The Emini is looking for the bottom of the range. The bulls want it so be around yesterday’s high. The bears want a test down to yesterday’s close.
This is a trading range open. Although the Emini is Always In Short, the first reversal up will probably be sold and the Emini will probably be in a trading range for the 1st 1 – 2 hours. If there is a strong breakout up or down, traders will look for a swing trade. Without that, they will continue to scalp.
Pre-Open Market Analysis
S&P 500 Emini: Price action day traders expect a rally
At the end of yesterday, the Emini reversed up strongly from just below the January low, and Price action day traders expect a rally today. However, like the prior 3 days when the Emini tried to reverse up, the reversal was not clear and strong. There were many big bear bars and deep pullbacks, and the Emini tried and failed to get above the 60 minute moving average or close on its high. However, the bulls were able to prevent the bear breakout, which is important. If the bears succeed in breaking below the January low, especially if the bear breakout is big and has at least a couple of closes below the low, they then would begin to have a 40% chance or better of a measured move down below the 300 point tall, 2 year trading range. That would be a test of the double top on the monthly chart at around 1500.
The reversal up yesterday was strong enough so that the odds favor higher prices over the next several days. Because it was not nearly as strong as it could have been, there is still a 40% chance that it will fail next week and reverse down below the January low. The bulls need signs of strength. Without them, the rally is just part of the bear flag that began on Monday. With signs that the bulls are taking control, traders will look for a test of the top of the February trading range. There is still a 40% chance that there will be no breakout and that the bulls will get a new all-time high.
The Globex is up 20 points an hour before the day session opens. The odds are there there will be follow-through buying in the 1st 2 hours. The gap up might be all that the bulls get, but higher prices are more likely. Because the week has had many attempts at rallies and all have failed, online day traders will be ready for a bear trend, even though a bull trend is more likely. The bulls need to get strongly above the 60 minute moving average and they need consecutive big bull trend bars on the 60 minute chart. Without that, the odds are that today will be another trading range day.
Today is Friday so weekly support and resistance are important. The week opened at 1851.25 and the bulls want a bull body on the weekly chart. They would prefer a close on the high of the week at 1877.75, which would create a big bull trend reversal bar at support on the weekly chart. The bears always want the opposite.
Forex: Best trading strategies
I said yesterday that the EURUSD bulls achieved their goal of a 2nd leg up on the daily chart, and it reached several resistance targets. With the wedge top on the 60 minute chart, I said that a couple legs down for about 200 pips was likely over the next few days. That selling began yesterday and continued overnight. I always look for the highest time frame chart that clearly has the pattern, and that is the 240 minute chart. I then look for 2 legs and about 10 bars of sideways to down trading. The selloff so far has lasted 5 bars and has had one leg. That leg has not clearly ended yet, but it probably will today or early next week. The EURUSD will probably then bounce, and that bounce will likely be sold and followed by a measured move down to support, like the 1.1100 higher low, where the bulls will begin to again start to buy.
Next week’s likely bounce to a lower high will create the right shoulder of a head and shoulders top. Sixty percent of tops fail to reverse a market and instead become bigger trading ranges or bull flags.
The EURUSD had a bear breakout 15 minutes ago on the 5 minute chart. The bears want the big bar to be a measuring gap. The bulls want it to be an exhaustion gap. It is coming 100 bars into the bear trend, which makes an exhaustion gap more likely. This means that the EURUSD will probably begin to go sideways soon and work its way up to the top of the big bear trend bar. Less likely, it will trend down for a measured move without closing the gap. The gap is the close of the big 5 minute bear trend bar and the breakout point (the trading range low) that formed 7 bars earlier.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini rallied in a trending trading range day and closed above the open of the week. This created a bull trend reversal bar on the weekly chart. The high of the day was around a measured move up from the height of yesterday’s bull breakout.
The Emini had some follow-through buying after yesterday’s bull trend reversal, but the trend up today was not very strong. The bulls were able to close above the open of the week, which created a bull reversal bar, but they were unable to close at the high of the week. This means that the buy signal for next week is weaker. However, this week is a buy signal bar for next week, and the context is good (the bottom of a 2 year trading range). The odds are that next week will trade above this week’s high and trigger the buy signal on the weekly chart. It is impossible to know at this point if the reversal up will be strong, but there has been so much trading range price action for over a month so that the odds favor a weak bull breakout on the weekly chart and more trading range on the daily chart.
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.
