Emini awaiting November FOMC Fed interest rate decision
The Emini had a big gap up to a new all -time high and the 1st 3 bars were bull bars. However, none had a big bull body, and that therefore reduces the chances of a trend from the open bull trend day. The hesitation increases the chances of a trading range over the 1st hour. Yet, it is sustained buying, and most bears will now not sell unless there is a micro double top.
At the moment, the odds favor either a rally for an hour or so before a trading range, or a selloff to a double bottom around the moving average. If there is a deep selloff, the odds would favor a trading range day. The bears now need either a parabolic wedge top or a trading range and a double top. The bulls will buy the 1st reversal down.
Pre-Open market analysis
Today was inside yesterday, which was inside Friday’s range. This is consecutive inside bars (an ii Breakout Mode pattern). Both days were also dojis, and therefore even more neutral, awaiting the breakout after tomorrow’s 11 a.m. report.
The Emini rallied strongly last week, but pulled back for the past couple of days. Since the daily, weekly, and monthly charts are in bull trends, the odds continue to favor higher prices. However, all 3 higher time frames have the most extreme buy climaxes in the past 50 years. Therefore, the odds favor at least a 5% correction beginning in the next couple of months. But, trend have inertia and are always trying to reverse. The odds are that all reversals will continue to fail. Until there is a strong bear reversal with strong follow-through selling, the odds continue to favor at least slightly higher prices.
Since there is an FOMC interest rate announcement at 11 a.m., there is an increased chance of a trading range into the report. In addition, the odds favor a breakout after the report. The initial breakout after the report fails 50% of the time. Therefore traders should wait at least 10 minutes before entering after the report.
Overnight Emini Globex trading
The Emini is up 9 points in the Globex market. It will therefore probably gap up to a new all-time high. The bulls want a measured move up based on the height of the 40 point height of the 2 week trading range. However, the bears want a reversal down. If the bears get a reversal down today or tomorrow, it would create a wedge top in the buy climax. While that is a reasonable sell setup, most reversals in strong trends fail. Consequently, the odds continue to favor higher prices until there is a strong reversal down and consecutive big bear bars on the daily chart.
Since the 11 a.m FOMC announcement usually leads to a big move, all financial markets usually try to get neutral before the report. That means that the Emini will probably enter a trading range after around 9 a.m. However, when there is a big gap up on the open, there is an increased chance of a big trend for the 1st 2 hours. In addition, the odds are slightly greater that it will be in the direction of the gap. That means that there is an increased chance of a trend, and a bull trend is slightly more likely.
Trends can either begin on the 1st bar or after a trading range. If the Emini enters a trading range for an hour or so, traders will look for a wedge top or double top to sell or a wedge bull flag or double bottom bear the 5 minute moving average to buy. These are reliable swing setups that are common when there is a big gap up, but no immediate trend up or reversal down.
EURUSD Forex market trading strategies
While yesterday is a Low 1 bear flag, it was a doji. That is a one bar trading range and therefore a low probability sell setup. In addition, the day before was a bull day. This is a 3 day tight trading range, and it is likely to have one more test up before the bear trend resumes.
However, the selloff was strong and the odds favor at least slightly lower prices. Furthermore, the 11 a.m. FOMC announcement today is a catalyst. This means it can lead to a big more up or down. At the moment, there are probably more buyers than sellers below yesterday’s low, and the 3 day tight trading range will probably grow for at least a couple more days.
If the bulls try for a rally from a micro double bottom with Friday’s low, the bears will sell the rally. They will then have a micro double top. That would be a Low 2 sell signal bar below the moving average. Consequently, and it would represent 2 failed small rally attempts and therefore have a higher probability of leading to a resumption of the bear trend.
Overnight EURUSD Forex trading
The EURUSD Forex 5 minute chart broke below yesterday;s low over the past 15 minutes. Yet, yesterday was a low probability sell setup on the daily chart. Therefore, the odds are against a strong trend down after this breakout. Furthermore, all financial markets usually enter a small trading range in the hours leading up to the FOMC announcement. As a result, the odds are against a big trend up or down until after 11 a.m.
There is usually a big breakout up or down immediately after the 11 a.m. announcement. It does not matter to a trader what the Fed does. All that matters is how the market reacts. Since traders have to assume that all financial markets are neutral just before the report, the EURUSD Forex market will be in breakout mode.
That 1st breakout on the report has a 50% chance of reversing within 10 minutes, even if it is big. Consequently, traders looking to trade after the report usually should wait at least 10 minutes for confirmation that the breakout is succeeding, or for a reversal and a trade in the opposite direction. Since there can be a big trend with big bars after the report, traders should trade a smaller position to keep their risk within their comfort zone.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Like after most FOMC announcements over the past 2 years, the Emini did not break into a trend. It ignored the meeting. There is now a 10 day wedge top on the daily chart. However, most reversals fail. Therefore the odds are that this one will as well. Until there is a strong reversal down with follow-through selling, bulls will continue to buy.
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.