Posted 7:09 a.m.
The Emini futures contract gapped up, but closed the gap on the 2nd bar. However, the tails below bars and the early bull bar made it more likely that this was a bear leg in what would become a trading range.
The bulls created an opening reversal up from support (the moving average). The 3 early big bear bodies and the closure of the gap reduce the probability of that. Also, the Emini is at the top of the 60 minute channel. This makes a strong bull trend day unlikely. The reversal up is enough to make the day always in long, but the bulls were disappointed by the selloff below yesterday’s high. This increases the chances that this rally will be a bull leg in a trading range or in a weak bull trend. In either case, pullbacks can be deep.
The bears are hoping for a small double top and then a breakout to a new low of the day and then a measured move down. However, the reversal up was strong enough to make that unlikely. For the next couple of hours, the market will probably be sideways to up. The upside is going to be difficult because the Emini is at the top of a 60 minute bull channel.
Since both the bulls and bears have not yet done enough to convince traders that today will be a strong trend day, the odds are that it will be either a weak trend day up or down, or mostly a trading range day. A strong breakout in either direction could lead to a strong trend, but that is not what is happening so far
My thoughts before the open: Trading strategies for a gap up to a new all time high
The Emini is up in the Globex and it might gap up during the day session. This could be a gap to an all-time high and a gap up on the weekly chart. When a bull trend exhibits unusually strength late in the trend, it is more often exhaustion than a measuring gap. The Emini futures contract is coming to the end of one of the strongest times of the year…February through April. I have mentioned this many times in the price action trading room. The Emini is overbought, especially on the monthly chart. If there is a breakout, especially if it is strong, it is probably going to lead to a buy climax and a reversal that will last for many months.
I personally would like it to happen because I have some cash that I want to use to buy stocks. I think the odds are that I will be able to buy stocks at some point this year at the current price or lower, and possibly 20%, and I am waiting.
If the Emini does gap up, traders will watch for a gap down at any point in the following weeks. For example, if it gaps up on the weekly chart, maybe it will gap down in 2 or 3 weeks and create an island top on the weekly chart. Since this would be a failed breakout of a 3 month trading range, the context would be good for a TBTL (10 bar, 2 leg) correction down on the weekly or monthly charts.
Although it is possible for a gap up to be a measuring gap and lead to a rally that lasts hundreds of points in the Emini, the probability of this is low when the monthly chart is so overbought (see my weekly blogs).
If the Emini gaps up today, the bears will try to close it and the bulls will try for an early low of the day. The Emini is very overbought on all higher time frames. I said that an exhaustive buy climax is possible. That does not mean a huge bull trend day. A buy climax on the monthly or weekly chart can come from a series of ordinary days on the 5 minute chart. So, a gap up and then a bull trend today does not have to be in the form of a huge bull trend day. In fact, given how much trading range price action the Emini has had for many months, that is unlikely. If there is a gap up and a bull trend, the trend will probably not be strong and it will probably not cover a lot of points. If it is a trend, even weak, bulls should look for opportunities to swing trade their longs. If it is particularly weak, they will scalp more and swing trade less, and bears will scalp. If there is a reversal down, or if there is a broad bull channel, bears will sell.
On a gap up, traders will be ready for a failure in the first hour. If instead there is a bull trend, they will be ready to short a failure late in the day. The Emini is breaking out of a 3 month trading range and this is a transition in the price action. There are now many possibilities for the next few weeks and trading should be fun.
Forex Online Trading: Small trading ranges
The Forex price action overnight has been quiet, but the biggest moves have been in the JPY and CAD. The best Forex trading strategy for the first hour or two for traders learning Forex trading is to be very careful. If the day remains quiet, Forex trading might be mostly with limit orders from traders looking for Forex scalps. If this is the case, this is not Forex trading for beginners, and they should just wait for a reasonably strong breakout up or down in any market. If the the swings are 20 pips or more and there is not much overlap of the bars in the legs, online Forex traders can also scalp reversals at the top and bottom of the range. If the legs are strong, wait for a 2nd signal.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini gapped up to an all-time high and sold off at a wedge top in a bear channel, creating an outside down day.
Last week’s breakout to a new all-time high was not strong, and today was bad follow-through for the bulls. However, the higher time frames are still in a bull trend, even though a 10 – 20% correction will probably happen this year. Since today was in a bear channel, there is a 70% chance of at least a 2 hour correction tomorrow, which could be a 2 legged rally or a trading range. There is often some follow-through selling in the first hour or so before the rally begins. Less likely, tomorrow will be another bear trend day.
The Forex markets had small ranges today for swing traders and most of the trading was Forex scalping.
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.
