The Emini gapped down below the 5 day trading range and had good follow-through selling. This is a breakout below the bottom of the 3 week bull channel and a failed breakout to a new all-time high, and it will probably be followed by lower prices over the next several days.
The Emini is clearly Always In short, but it is far below the moving average. Whenever there is a big selloff on the open and the Emini gets this far below its average, it usually then enters a trading range for an hour or more, and that will probably be the case today. However, the selling was strong enough so that there is a 70% chance that we have seen the high of the day. Traders should initially look to sell a rally near the moving average.
If enough buying pressure develops, they can also look to buy dips for scalps, but until there is a strong bull reversal, it is better to look to scalp or swing shorts, especially on rallies near the moving average. This is strong enough to increase the chances of lower prices for at least a day or two more. The monthly candle closes on Friday and it could end up as a sell signal bar in an overbought monthly bull trend.
My thoughts before the open: Learn how to trade a tight trading range
Traders learning how to trade the markets can see that the S&P Emini futures contract has been in a tight trading range for 5 days after breaking out to a new all-time high. The breakout and follow-through have been week and are occurring late in a bull trend on the daily chart. This increases the chances that the breakout is an exhaustive final leg before a correction.
Because the Emini is in a tight trading range on the 60 minute and daily charts at a key price, it is in breakout mode. Most strong breakouts on the 5 minute chart over the past week have failed and reversed, and the swing trading strategy has been to be cautious and to take profits quicker than swing traders would like.
The daytrading tip for the day is to expect more of the same. Traders will mostly scalp. The price action trading strategy for experienced traders is to continue to trade this as primarily a limit order market until there is a strong breakout with good follow-through.
While this is difficult daytrading for beginners because it usually requires limit orders, wide stops, and scaling in, there has been at least one or two swing trades every day. There should be at least one today. Traders learning how to do online trading need to patiently wait for a strong signal bar in the candlestick pattern, and preferably a 2nd entry buy setup near the bottom of the range or sell setup near the top. If there is a strong breakout with follow-through, this will increase the chances that there will be at least one pullback entry daytraders looking for a 2nd leg, and this should be a high probability day trade.
Even though the odds favor more trading range price action after the Emini has been in a tight trading range for 5 days, because it is at a key price level, day traders always need to be prepared for a trend. It can come with a big breakout, but more likely would be a small pullback trend that constantly looks like it is going to reverse, bull all reversals fail at the moving average. The pullback setups usually do not look reliable, but they then become the start of the next leg in the trend. While this type of candlestick pattern happens only a couple of times a month, this is the kind of environment when it often forms…it looks like a leg within the trading range, but it continues to grow instead of reversing.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The S&P Emini futures contract was in a sell the close bear breakout in the first hour, but then began to stair step down. This bear channel allowed bulls to scalp below prior lows. Bears sold strong bull bars near the moving average.
The Emini reversed up in the final hour, but the rally had a lot of overlapping bars and it will probably end up as a bull leg in a trading range. Because it is a reversal up from a wedge bottom, the first pullback will probably be bought. It would then form a higher low major trend reversal for a 2nd leg up tomorrow. However, the selloff was so strong that it will probably result in a 2nd leg down on the 60 minute chart after any 2 legged rally on the 5 minute chart. The day trading tip for tomorrow is to look for a 2nd leg up on the 5 minute chart. After that, look for a 2nd leg down on the 60 minute chart.
Best Forex trading strategies
The dollar is overbought and in a trading range against many markets. On the daily chart, the EURUSD has had 2 legs down on the daily chart and is now between the April trading range below and the May trading range above. This usually results in a new trading range, straddling the prior two. There is a leg 1 = leg 2 target down at 1.0800, or about 80 pips below, and this is magnet.
In Europe this morning, the breakouts in the USDCAD and the USDJPY were strong enough so that they should be sideways to up in the US session today. However, traders learning how to trade the markets can see that the moves are climactic, and this might lead to a lot of trading range price action today. Traders who are trading Forex for a living will be looking to buy pullbacks for Forex scalping and possibly Forex swing trading.
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.