Posted 7:02 a.m.
The Emini dipped 1 tick below yesterday’s low and reversed up with a pair of strong bull trend bars. That made the Emini Always In Long. Yesterday was a bear channel, and a bear channel usually transitions into a trading range rather than a bull trend. This means that there might be a deep pullback before the bulls clearly take control. If the bears get the deep pullback, a reversal up could form a major trend reversal.
The bears can still argue that they are in control until the bulls get above a lower high. If the bulls break above the 2003.75 lower high from yesterday, then the odds are that the bear channel has ended and the Emini would be in either a trading range or a bull swing. Unless the bears get a strong breakout below the low of the day, the bulls will look to buy a higher low for a 2nd leg up. The odds are that the Emini has made the low of the next 2 hours and that the bulls have begun their 2 legged, 2 hour minimum objective.
Pre-Open Market Analysis
S&P 500 Emini: Learn how to trade the markets in a bull flag
The Emini yesterday did the two things it was likely to do this week. It went above and below Monday’s range. Yesterday sold off in a tight channel for 5 hours. This was a sell climax. Today has a 75% chance of at least a 2 hour sideways to up move. There is a 50% chance of 1 – 2 hours of follow-through selling on the open before the rally attempt begins.
I said that the rally over the past 2 weeks was strong enough so that the first pullback would probably be bought. Yesterday was that 1st pullback. The pullback might last 1 – 3 days. This means that it might continue today and tomorrow. If the Emini has 3 consecutive bear days closing below their midpoints, the chance of a bigger pullback goes up to 70%. If not, the Emini should test the September high this week.
Friday is important because it determines the appearance of the weekly candlestick pattern. If the rally is the start of a bull trend reversal, Friday might have a strong close well above the moving average and the September high. If the bulls are disappointed by this week’s candle, the odds favor more trading range price action.
Because the Emini is making a decision over the next 3 days, it might have a lot of trading range price action until later in the week. It had almost 3 days of trading range price action before yesterday’s selloff. The Globex session was in a tight trading range. All of this increases the chances of trading range price action today.
Forex: Best trading strategies
The EURUSD is testing the September 18 lower high around 1.1470. The bears want a double top near the top of the 6 month trading range. The bulls want a breakout and then a test of the August high around 1.1710. Today and tomorrow’s price action might let online day traders know what the path of the next couple of weeks will be.
The 60 minute chart of the EURUSD has been in a broad bull channel since the September 22 double bottom. Bull channels usually behave like bear flags and have bear breakouts. Because this rally is testing important resistance, traders learning how to trade the markets should be aware that the chance of a bull breakout above the bull channel is at least 40%. There is still a 60% chance of a bear breakout. A bear breakout can result in either a trading range that could last for many days, or a swing down.
The 5 minute chart had a 40 pip breakout over the past 20 minutes. If the bulls get strong follow-through buying, today could break above the September 18 lower high, and the EURUSD could have a bull trend day. A 40 pip breakout is not particularly big, but if the follow-through is relentless, the bulls could accomplish their goal. The bears do not mind the bull breakout as long as it becomes a buy climax and is followed by a reversal down from that 1.1470 area.
Those who trade the markets for a living will pay attention to what happens with today’s rally because it can create a trend day up or down. Because the EURUSD has been in a trading range for months, trading range price action is strong. Trading ranges resist breakouts. This means that the odds are against a successful breakout on this first test up. However, even though a pullback and a trading range are more likely before the EURUSD makes up its mind, the potential is there and day traders should be prepared to either a strong breakout or a strong reversal down.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini was in a broad bear channel after yesterday’s tight bear channel.
The Emini had follow-through selling for the 1st 2 hours and then a strong rally. However, it failed at the 60 minute moving average and formed a lower high in a broad bear channel. It reversed up from a lower low major trend reversal and micro double bottom at the low of the day.
Friday’s close will be important. The bulls want follow-through buying after last week’s really. The bears want this week to totally reverse last week. The next 2 days will provide information about what to expect over the next few weeks. if the bulls get strong follow-through, the Emini will probably test the 2040 bottom of the 7 month trading range. If the bears close the week on its low, the bears will then have a higher probability of a 2nd leg down than the bulls will have of a reversal up. Most likely, because the Emini has been in a trading range for 2 months, Friday will not be very clear, and the Emini will continue in a trading range for at least a few more weeks.
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.
