Emini sell climax test of February and 2018 low
Pre-Open market analysis
Yesterday, the Emini bears broke below the February low and formed a new low of the year. It closed slightly above. I wrote over the weekend that the year will probably close above the February low and below last year’s close. That is still likely, given that the year is a trading range.
Yesterday was the 5th consecutive bear trend day on the daily chart. That is unusual for 2018 and therefore unsustainable. It makes it likely that today or tomorrow will be a bull day.
Overnight Emini Globex trading
The Emini is up 16 points in the Globex session. While yesterday was in a strong bear trend, it was climactic. It was probably just a sell vacuum test of the February low. Yesterday’s late reversal up was strong and probably the start of a trading range.
When a market breaks below major support, it usually pulls back. However, it usually falls again below that support. At that point, traders watch to see if the breakout will continue or if it will reverse up a second time. Therefore, traders expect another test of the February low today.
Because yesterday was a sell climax, there is a 75% chance of at least 2 hours of sideways to up trading today, beginning by the end of the 2nd hour. There is also a 50% chance of follow-through selling in the 1st 2 hours.
But, there is only a 25% chance of another big bear day. This makes sense because of the uncertainty of tomorrow’s FOMC announcement. That is a potential catalyst. The Emini might wait until then before deciding whether to collapse down to the monthly bull trend line below 2400 or reverse up.
After 5 bear days on the daily chart, today or tomorrow will probably be a bull day. Therefore, the bulls will look for buy setups if today falls below the open. This is especially true in the final hour.
EURUSD Forex double bottom higher low major trend reversal ahead of FOMC
The EURUSD daily Forex chart has been in a tight trading range for 8 weeks. It therefore has both buy and sell signals. Yesterday was a good buy signal bar for a double bottom higher low major trend reversal. This is a credible buy setup. However, the probability of a swing up is only 40%. Traders wanting higher probability will wait for a strong breakout above the December 12 lower high of 1.1444.
The bears want this breakout to reverse, like all of the other breakouts up and down for the past 2 months. They then want a breakout below the double bottom and then the November low.
Tomorrow’s FOMC announcement is a potential catalyst for a big move up or down. Furthermore, currencies sometimes begin moves around the 1st of the year that last for months. Consequently, traders should be ready to switch from trading range trading to trend trading within the next few weeks.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart rallied 70 pips overnight in a tight bull channel. It broke above yesterday’s high and triggered a buy signal on the daily chart.
However, it then sold off 30 pips in a tight bear channel. That creates a Big Up, Big Down move, which means Big Confusion. A strong minor reversal usually leads to a trading range. The odds are that there will be a test of the overnight high today.
But, the bars are small and most overlap several other bars. This is not how a strong breakout typically looks. Therefore, while the daily chart triggered a buy signal, the 5 minute chart will probably be in a range today. Traders might be waiting for tomorrow’s FOMC announcement.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini was in a trading range for a few hours. Then, the bears got a double top lower high major trend reversal. The selloff fell below the February low and yesterday’s low. After a strong rally that failed to get back to the open, the Emini collapsed into the low. By closing below the February low, today was the new low and low close of the year.
Tomorrow’s 11 a.m. PST FOMC announcement will probably create a big move. It can be up, down, or both. Traders should be flat going into the report and not trade again until at least 10 minutes later. Because the Emini has had many big reversals over the past 2 month, there is an increased chance of a big trend day up or down.
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.
Looking for a swing trade, I hesitated to short the B57 DTBF. I saw the day as a Trading Range day, so taking the short there put me in the bottom 1/3rd of the range with little profit potential to the LOD. In general, do you think it best to just take good setups even though you may be near the bottom of a range/support? Thanks.
I hope you are doing well. Today I tracked almost 20 stocks that their range was between 30-50% of ATR (Average True Rate). Also the breakout from the first 18 bars range had happened before 1 P.M. (Eastern Time) so based on your videos I expected the range to double. However among all almost 50% of them formed non trend days. Meaning the range did not expand and I was trapped.
This is the list of stocks that I tracked today and the B.O. rule was not applicable to them:
MSFT, MA, CRM, BIDU, AAL, TWTR, NVDA, WMT & COST. Could you please explain what I missed today?
I just looked at your list and only WMT broke out of the bottom and top of the 18 bar range. That means 8 of the 9 only broke out of one side of the range. My general rule is that once there is a breakout of one side of the 18 bar range, there is only a 10% chance of a break of the other side. You had 8 of 9 that followed the rule, which is around 10%.
Some days are mostly trading range days. Therefore, selling at the low or buying at the high is a bad strategy. Also, most days are trading range days. Therefore, a trader who sells the 18 bar low or buys the 18 bar high is going to struggle. But, there are useful things here. For example, if there is a bull breakout and the rally up to it is strong, a trader might buy the breakout. In addition, once there is a breakout above the 18 bar range, a trader could wait to buy a pullback, knowing that there was only a 20% chance of a break below the low. Alternatively, he could buy a small position above and buy more on about a 50% pullback. Another approach is to wait for the breakout and see if a reversal forms within a few bars. If there is a good sell signal bar, he can sell, expecting a test back down to the middle of the range. I like being flexible, and I constantly reevaluate what the market is doing. If the day has a lot of trading range price action, I look for reversals. If there is a breakout above the 1st 18 bars and then a reversal down, I will look to buy a reversal up from the lower half of the range.
You are a legend AL. I got my answer and your explanation was great.
I think if the range of the day is between 30-50% of ATR I should not necessarily expect the range to double. It might not expand at all. The overall context of the market is much more important I think. If the the 18 bars range includes lots of reversals then it might not expand. But as far as I remember we had couple of slides in BPA Setups and main course about 10 bars rule. If the open was at the middle of 10 bars then we expected the range to double. So I mixed 18 bars rule with 10 bars rule. I was thinking that if the market is in B.O. Mode, and it breaks above 18 bars range so the range should double but I think it does not work that way. As you are always explaining in your videos context changes the probabilities.
Your answer was very complete. Tnx for looking into this.