Posted 7:30 a.m.
The bulls got an opening reversal at the moving average, and then rallied above yesterday’s high and the 60 minute bear trend line. However, the breakout so far has had weak follow-through buying and this increases the chances that the current bull leg will end up as part of a trading range.
The Emini is currently always in long, but the rally is weak and this increases the chances of a deep pullback, possibly back below yesterday’s high. However, the bull breakout was strong enough so that the bulls will probably buy the pullback.
The bears need a reversal and a strong bear breakout. Without that, they need a trading range so that they can create some selling pressure. Until there is more selling pressure, bears will be hesitant to sell, and will probably only look to sell above bars for scalps.
My thoughts before the open: Swing trading strategies for a breakout
Traders learning how to trade the markets can see that the S&P Emini futures contract is up in the Globex session. Yesterday’s rally corrected about 50% at the end of the day and the bull are trying for trend resumption and at least a Leg 1 = Leg 2 rally today.
The Emini is currently around the top of its 6 day trading range in the Globex session. A move above yesterday’s high would trigger a high 2 (ABC bull flag) buy entry on the daily chart. However, since this is a tight trading range, the probability of a successful breakout is not nearly as high as it would be in a more sloped bull flag and in a stronger bull trend.
The all-time high is the target for the bulls, and it is only about 25 points above yesterday’s high. The bulls need a strong breakout above the 6 day trading range and follow-through buying. Without this, the breakout attempt will fail and the Emini will trade back into the tight trading range.
Because of the high 2 buy setup, daytraders know that there is an increased chance of a trend day up or down today. The day trading top for today is to look for a strong breakout or a reversal. Daytraders will look to swing trade, and this might offer good day trading for beginners. If instead there is a lot of early trading range price action, they will scalp.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The S&P Emini futures had a bull opening reversal at the moving average, but the bears sold the wedge top at the measured move up from the low of the day to the open of the day. The day then closed around the open and formed a doji day. The candlestick pattern today was a triangle.
This is the 3rd consecutive doji day and the 7th day in a tight trading range. The Emini’s price action has put it in breakout mode, and traders who are learning how to trade the markets need to maintain an open mind. The breakout can be in either direction.
Best Forex trading strategies
The dollar was overbought on the 60 minute chart, and yesterday’s selloff against most major currencies did a lot to relieve that. Traders learning how to trade the market should realize that when an overbought market corrects down sharply, it is a Big Up, Big Down price action pattern. The result is usually confusion and a trading range.
The 60 minute chart of the EURUSD corrected about 50% of its May selloff and is testing the May 22 lower high and the bottom of the upper trading range. The rally was so big yesterday that there is a big gap down to the breakout point, and the market pulled back a little into that gap overnight. Daytraders who are trading Forex for a living expect more trading range price action today. The market will then decide between another leg up after yesterday’s rally and a reversal down.
The USDJPY has been in a trading range for over a week after a strong rally. Last night’s rally retraced about 50% of yesterday’s selloff and the bears are hoping that it will become a lower high major trend reversal. However, the Forex price action in the rally was strong enough so that the bears will probably need several bars (hours) of sideways trading to accumulate selling pressure. Without that, the first reversal down will probably be bought. Although the USDJPY is Always In Long of the 5 minute chart, it is still below the top of yesterday’s bear reversal and a trading range is more likely than a trend up or down.
I mentioned that the AUDUSD (and the GBPUSD) was in a tight bear channel for several weeks and that yesterday had a Final Bear Flag reversal setup. Yesterday’s reversal up was strong enough so that it will probably form a higher low and a second leg up. This higher low should be a reliable price action pattern for Forex trading for beginners. Traders will be ready to buy any reversal up after a selloff, if one comes. They will be especially watchful at around a 50% pullback to around 0.7700.
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.
