The Emini had an early sell setup for the 2nd entry on the failed breakout above yesterday’s high, but it formed in a tight trading range and in a tight bull channel. Although this is a possible high of the day, the odds are that there will be buyers late in the day and the Emini will close above its open. The selloff has lacked consecutive big bear trend bars, making a bear leg in a trading range more likely than a bear trend.
Then bulls want this early selloff to reverse up at the moving average. This would be an opening reversal and a possible low of the day. They then want a test up to the gap below Friday’s low.
The first hour has been a limit order market. Although it has been in a bear trend, it is not strongly bearish. It can still fall a long way, but until there is a strong breakout with follow-through, day traders will mostly trade with limit orders and scalp. This is not good day trading for beginners. They should wait for the breakout up or down, or for a good buy signal bar near the low, betting on an opening reversal up from the moving average and an early low of the day.
As I am writing, the Emini is Always In Short, but since the selloff is so weak and yesterday’s rally was so strong, and because today will almost certainly close above the open, bulls should be looking for a buy setup and then a swing up. The current trading range price action can last for 2 or more hours, but regardless how long it lasts, bull day traders will look for a price action setup that will allow them to buy for a swing trade. Much less likely, today will be a bear trend day.
My thoughts before the open: Day trading strategies for a late rally
After 9 consecutive bear bodies on the daily chart, today has an 80% chance of closing above its open, even if it has a big gap up on the open. Traders learning how to trade the markets can scroll back on the daily chart and they will discover that this has not happened in over 10 years. What are the chances that it will get even more oversold by having another bear body today? I would bet against it.
I mentioned yesterday that if the Emini was below the open late in the day, day traders would buy it for a rally into the close. That is what happened, but the close of the day still ended up 1 tick below the open, creating another bear body on the daily chart. The day trading tip for today for those learning how to become a day trader is the same as yesterday. If the Emini is below the open after 11 a.m., the price action trading strategy is to look for a buy setup for a swing trade that leads to the day closing above the open. This offers high probability trading for beginners and pros. Also, there is a strong seasonal tendency for a rally into the 4th of July.
The other key price is the top of the gap on the daily chart at 2086.25. As long as the Emini stays below, the bears have a greater probability of another leg down. If the Emini closes the gap, the bulls have a greater chance of a bull breakout above the 6 month trading range and another all-time high. However, that high will probably fail because there is an 80% chance of the Emini falling below the monthly moving average this year, which is about 10% below the high.
Day traders need to remember that whenever the Emini has a high probability to do something, this creates the possibility of a low probability event. That event would be a strong selloff, especially late in the day. Remember, the monthly chart is very overbought and a 10% correction is likely. That correction might begin with a big surprise, like a huge selloff on a day that is much more likely to rally into the close. Although a big selloff is unlikely, if one develops, day traders cannot be in denial and they have to find ways to get short.
Today is the last trading day of the week so weekly support and resistance can be magnets, especially at the end of the day. The weekly chart is at the weekly moving average, and it has been support for 6 months. It is also near the high and open of the week.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The price action on the daily chart is extremely unusual. Today is the 10th consecutive day with a bear body, and this is a once in 10 year event. The bulls had 10 consecutive bull trend bars in February and the rally was followed by a deep pullback. The current sell climax will also probably be followed by about 5 bars sideways to up soon. The odds of Monday closing above its high are again about 80%, even if there is a big gap up or down on the open.
There is potential market moving news from Greece and the Middle East over the 3 day weekend, and it could result in a big gap up or down. The bulls need to get above the top of Monday’s gap down. If they do, they will then test the high. If they continue to fail to get there, the odds that the current selloff is the start of the 10 – 20% correction will rise quickly. Traders will begin to look for a strong bear breakout. Until there is a breakout, there is no breakout, and the trading range will continue.
Best Forex trading strategies
The EURUSD is in an endless pullback from Monday’s rally on the 5 minute chart and it is in a trading range on the 60 minute chart. It has been in a tight trading range overnight, but it broke out to the upside on the report this morning. The breakout was strong enough to make follow-through buying likely, and those trading Forex markets for a living will look to buy pullbacks as long as it holds above the bottom of this morning’s bull reversal. However, if it falls below, online daytraders will look for a possible measured move down based on the height of the bull breakout.
Before the report this morning, the 5 minute charts of USDJPY and USDCAD were overbought and the AUDUSD is oversold. All 3 had a reversal on the report. The reversal was strongest in the USDJPY so the best Forex strategy for those trading Forex for a living is to look to sell a rally there. The breakout is big enough to have follow-through selling and a bear trend day today.
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.