The bears got follow-through selling on the open, but the probability is that it will not last more than an hour. At that point, the bulls probably will take control for at least a couple of hours. Swing traders will look for a buy setup at any time in the first couple of hours.
It is possible that the selling could last for several hours or even all day, but that is not likely. Yesterday was a spike and channel bear trend, and those channels usually evolve into trading ranges. Look for the Emini to become always in long soon. That does not mean it will be a strong bull trend. However, it should rally for at least a couple of hours and a couple of legs.
My thoughts before the open: Day trading tip is to look for a 2 hour swing trade up
Even though the rally of the past month has been weak and it is much more consistent with a bull leg in a trading range than with a bull trend that is about to rally for a measured move up from a breakout to a new all-time high, traders learning how to trade the markets always have to be respectful of the institutions that hold the opposite view.
Until there is a clear top, it is impossible to know if there are enough bullish institutions waiting for lots of bears to get heavily short before buying very heavily. If there are enough, the bulls could quickly get a strong bull breakout above the weak bull channel of the past month. This is the lower probability outcome, and that is why it the one that could create a pain trade.
If they get that bull breakout, many traders and other institutions would be trapped into longs, and they would take days to decide that they are on the wrong side. Once they do, they would buy back their shorts on the first small pullback, and that would create the 2nd leg up.
Yesterday sold off for many hours in a tight channel. The one high probability trade today is that there will be a 2 hour, 2 legged correction. It can be sideways or up. There is often some follow-through selling in the first couple of hours, but not always. The Globex session is down, and this could lead to a gap down.
There are 3 days left to the month, and the market could make a big move in either direction as institutions try to influence the candlestick pattern on the monthly chart.
The Forex markets had good swings overnight. Europe and Australia have been strong, the US, Canada, and Japan have been week. The AUDUSD rally had a buy climax and it has been sideways for the past hour. Traders learning how to trade Forex for a living should have good Forex scalping today and maybe some swing trades. The best strategy is to look to enter on pullbacks after the overnight swings.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
As I mentioned in the premarket post and in the price action trading room, the day trading strategy today was to look for a swing buy within the first hour or so. The bulls had a very strong bull trend reversal.
Tomorrow has an FOMC report at 11 a.m., and the market is failing to breakout strongly above the 3 month trading range. The report could provide a strong enough breakout to get follow-through for several days. Alternatively, it could provide a strong enough bear reversal to lead to a swing down to the monthly moving average. Traders should be prepared for anything tomorrow, and expect a big move on the report. About half of the time, the initial move is strong and quickly reverses.
The AUDUSD had a strong rally overnight for Forex swing traders, and the Forex trading strategy today was to look to buy pullbacks in strong markets. Europe was less strong, and Forex traders mostly scalped the EURUSD and EURJPY. There will probably be a big move up or down after the FOMC report tomorrow. Traders learning how to day trade Forex markets for a living should be flat going into the report.
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.