Emini and Forex Trading Update:
Tuesday June 4, 2019
I will update again at the end of the day.
Pre-Open market analysis
The Emini had unusually big swings up and down yesterday. The big swings up tell traders that the bears are beginning to take some profits. Additionally, the bulls are beginning to buy for a minor reversal up this week, which is what I have been saying for a few days.
This is consistent with the parabolic wedge sell climax on the daily chart. The month-long bear channel has 4 legs. That increases the chance of rally for a few days. The May 13 low is a breakout point and just above the 2800 Big Round Number and the 20 day EMA. These should get tested within a couple weeks.
When there is a rally above a tight bear channel, it typically is minor. It will probably last at least a few days.
The gap above the February 11 high is still a magnet below. If the reversal up is not too strong, the odds will continue to favor a closure of that gap before a test of the all-time high. However, that test is still likely at some point within a few months.
By trading below the May low yesterday, the Emini triggered a monthly sell signal. However, it spent yesterday oscillating around that low and closed just above it. Traders are deciding on whether the sell signal will succeed or fail. The odds favor a bounce.
Overnight Emini Globex trading
The Emini is up 18 points in the Globex session. I have been saying that the parabolic wedge bear channel will probably lead to at least a 2 – 3 day rally this week. That is still the case.
Today might gap up and begin a rally to the top of the bear channel. If there is a gap up today and it stays open, there will be a 2 day island bottom. That is a minor reversal and it would increase the chance of higher prices for at least a couple days.
Furthermore, the daily chart has been in a trading range for 18 months. Limit order traders who bet against breakouts, scale in, and use wide stops typically make money. Therefore, the bulls will probably get a bounce above the March 13 breakout point of 2802.00. That will be around the 20 day EMA.
Since the odds favor a bounce for at least a day or two, there is an increased chance of a bull trend day today. Day traders should expect an attempt to form an early low of the day. They will therefore look for either a rally from the open or a brief selloff on the open and a reversal up.
Traders should never assume that the market will only do one thing. They always need to be ready to do the opposite of what is likely. They will be willing to short if there is a strong reversal down.
Most days over the past month have had swings up and down. That is likely again today. However, because of the likelihood of a move up to 2800 starting soon, there is an increased chance of a bull trend day.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart rallied for 4 days in its yearlong bear channel. The rally broke above the month-long trading range overnight but pulled back. The bulls hope that the pullback only lasts a day or two and then forms a bull flag. If they can get consecutive closes above the range, they will then try to test the March 20 major lower high of 1.1448.
It is important to remember that all breakouts up and down over the past year have failed. The bears therefore are confident that this one will fail as well. This is true even if it first tests the March high.
The rally is strong enough to have at least a small 2nd leg up. Consequently, the bears need signs of strength. If they get a surprisingly big bear day this week or a series of small bear days, the odds will shift back in their favor. Traders will begin to look for a break to a new 52 week low. But if they are unable, the odds will continue to favor a bull flag over the next couple days rather than the reversal down.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart broke slightly above the month-long trading range overnight but reversed down. This is not how strong breakouts typically behave. Instead, it is trading range price action, which has been present for a year.
The 4 day rally was climactic and it tested resistance. That typically attracts profit takers and some shorting. If the bears can get a strong selloff over the next few days, the breakout will fail.
The fight will be over the appearance of the bars on the daily chart. The bears want 2 – 3 days that close near their lows and have big bear bodies on the daily chart. To accomplish this, they will sell 20 – 30 pip rallies.
However, they need 50 point swings down on the 5 minute chart. Also, they need consecutive big bear bars on that chart. They do not have these yet.
The overnight selloff does not yet look like the start of a swing down. Instead, it looks more like a pullback from the breakout on the daily chart. Traders still believe that the selloff will form a 1 – 3 day bull flag on the daily chart.
There is uncertainty about whether the selloff is a pullback or a reversal. Uncertainty is a hallmark of a trading range. Day traders will therefore look for 10 – 20 pip reversals today.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
Today rallied in a Small Pullback Bull Trend. I have been saying for several days that the Emini would probably rally this week because of its parabolic wedge sell climax.
Has the bull trend resumed? Probably not. Bulls would like to see a reversal up, but many would like it to come after closing the gap above the February 11 high. Therefore, this is probably a minor reversal up. It is a test of the May 13 low. That low was the breakout point of the head and shoulders top on the daily chart.
There is still room to the daily EMA and the momentum up is strong. Consequently, the Emini will probably be sideways to up for at least another day or two.
See the weekly update for a discussion of the price action on the weekly 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. We offer a 2 day free trial.
Charts use Pacific Standard Time
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.