The Emini opened with 3 consecutive strong bull bars and therefore was always in long. It is also reversing up from a wedge bull flag at the end of Friday. Friday’s rally was strong enough to have follow-through today. However, if it does, this could result in a wedge top and a pullback to what might be the bottom of a 3 day trading range. With a pullback likely soon,and with Friday’s rally lacking impressive strength, this initial trend from the open will probably be followed later in the day by a bear swing.
Friday closed below its midpoint and therefore was a reversal day just below the all-time high. If there is a reversal on the test of yesterday’s high, it could trigger the short below yesterday’s low. However, the downside is probably limited because of the strength of the FOMC breakout.
Although today is always in long, the bears are hoping for an opening reversal near yesterday’s high and an early high of the day. Traders learning how to trade the markets have to be prepared for a possible bull trap and buy vacuum test of resistance. Alternatively, the bears will try to create a wedge top. The bears need a strong downside reversal with follow-through to convince swing traders to hold onto positions.
The bulls are hoping that this rally is the start of a bull trend day. Since a trading range is likely, the bulls will probably be disappointed at some point in the first hour or two.
My thoughts before the open: Possible 60 minute trading range after a strong breakout
The pullback from the FOMC rally was deep and the test of the high was not very strong. This makes it likely that both are part of a trading range and that there will be a test down to the bottom of the pullback. However, the breakout was so strong to make it likely that there will be some measured move up based on the breakout whether or not there is a test down first.
Summary of today’s price action and what to expect tomorrow
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.