Emini outside down week just above February low
Pre-Open market analysis
After Thursday’s big rally, Friday was a big bear trend day. It is a sell signal bar for today, but it is at the bottom of a 7 week trading range. The bears have momentum, but the bulls have support. This is a Breakout Mode situation.
Also, last week was an outside down week that closed near its low. It is therefore a sell signal bar on the weekly chart. However, when there is a big outside down bar, there is an increased chance that the next bar will be an inside bar. This is especially true because of the 7 week tight trading range. Therefore, the bulls will look for a possible rally up from above last week’s low. The bears instead want a BO below.
Friday was in a bear channel on the 5 minute chart. A bear channel is a bull flag. Consequently, the odds favor a bull breakout. A channel typically evolves into a trading range. That increases the chance of trading range trading today. This is particularly true since Friday spent a lot of time going sideways, even though it was in a bear channel.
Overnight Emini Globex trading
The Emini is up 7 points in the Globex session. It will therefore open around Friday’s low and last week’s low. The bulls will try to create an early low of the day and low of the week from around last week’s low. There is therefore an increased chance of a bull trend day, or at least a trading range day with an early low.
While the bears want a big bear day, it is unlikely after a sell climax day at the bottom of a 7 week trading range. However, the biggest trend days come when they are least likely. Consequently, if there is a strong break below last week’s low and the Emini stays below the EMA, traders will sell all day.
Most likely, today will reverse up from around last week’s low and test Friday’s bear breakout point around 2665. That is the top of Friday’s double top bear flag.
EURUSD daily Forex chart has weak breakout above triangle
The EURUSD daily Forex chart has been sideways for 2 months. While there is a nested head and shoulders bottom, the bulls do not yet have a breakout above the 1.15 neck line.
They do, however, have a break above the top of the month-long triangle. But, the breakout has been weak. Furthermore, 50% of triangle breakouts fail. The daily chart is therefore still in breakout mode, deciding between a 300 pip measured move up to 1.18 and down to 1.09.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart has been in a 50 pip trading range overnight. Because the bulls are getting a breakout above the triangle on the daily chart, they need to convince traders that the breakout will succeed. They can do that by having a series of bull bars on the daily chart that close near their highs.
Without that, they will give up this week and the bears will then begin a reversal down. They need a break below the November 28 right shoulder of the nested head and shoulders bottom. Then, they have to break strongly below the November low.
Since most breakout attempts fail, the 2 month trading range will likely continue for at least another week or two. Because trading ranges on the daily chart have lots of trading range days, there is an increased chance of a continuation of the overnight trading range. Traders have been scalping reversals for 10 pips, hoping for a strong breakout up or down.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini began with follow-through selling from Friday. It reversed up from below the October low and 2600. This was likely since most trading range breakouts fail.
Today was a bull trend reversal day and a failed breakout below support. It also closed near its high. It is therefore a buy signal bar for tomorrow. It is a 3 day High 2 bottom nested withing a month-long High 2 bottom.
But the 5 day bear channel is tight. Consequently, the reversal up will probably be minor.
Until there is a series of 3 – 4 trend bars up or down, traders will continue to bet on reversals rather than successful breakouts.
The rally on the 5 minute chart had many bear bars and pullbacks. That reduces the chances of a strong bull trend day tomorrow. The Emini will probably test Friday’s double top around 2665 tomorrow. Unless the bulls strongly break above it, there will probably be a test down to 2615, which was the beginning of today’s bull channel after the initial bull breakout.
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.
Would it be a good idea for a trader to sell naked puts and calls in the SPY, AAPL, FB rather than just buy calls, puts and spreads?
The older videos haven’t really fully discussed selling puts and calls, especially some of the higher risk such as naked options.
What is your risk contain strategies, when you selling calls and puts?
I think that the only sellers of naked puts should be either options institutions that make their living selling options, or traders who want to own a stock but at a lower price. If a person was looking to invest in a stock and hold it for months to years and was wanting to do it within the next week or two, but he believes it will not rally strongly soon, then selling puts is a reasonable choice. But, if a person was basically looking for a scalp, it is a bad idea because the risk is too great relative to the reward.
You said something very interesting in the webinar today in terms of getting out of all-in positions that go the other direction. You said that on normal ~20point days you get out of a position a couple of ticks above or below an opposite direction bar. However, on large days like today, you change that to a couple of points above or below an opposite direction bar. That in itself I haven’t heard you say before and is very interesting; however, I also am curious how you handle a situation when you have back to back opposite direction bars. Take for example bars 62 and 63 today. If you were long and then bar 62 was the bear inside bar you would have set an exit 2 points below 62. Then 63 was a bull bar followed by the bar 64 bear bar. Would you have kept the 2 point exit below bar 62 or, once 63 was a bull bar, would you have changed the idea and reset the 2 point exit to below bar 64? I apologize if you talk about this in the videos and I just haven’t reached that point yet and am asking you to repeat yourself here. Thank you very much.
With the 61 buy climax, I would get out below 62 and not look to buy again until there were about 2 legs down, usually to the low of the buy climax bar and the EMA. However, if 61 looked like a measuring gap instead of an exhaustion gap, I would wait for 2 consecutive bull bars to buy again and not buy above 63.