S&P500 testing 2200 big round number
Today opened with a gap down. Yesterday therefore was a 1 day island top. While many tops and bottoms begin with island tops and bottoms, most island tops and bottoms become parts of a trading range. Hence, it is not strongly bearish. The 3 consecutive bear bars on the open increase the chances of a bear trend day.
While the Emini might enter a trading range for a hour or 2, as it has done for most days over the past month, today has a reasonable chance of being a strong bear trend day. This is because the context is good for a pullback on the daily, weekly, and monthly charts. That pullback would begin on the 5 minute chart, and today is a reasonable candidate. The bears need follow-through selling. Yet, because of the frequent early trading ranges, today will probably go sideways first.
The bulls want an early low of the day. They need to get a much stronger reversal up than what they’ve had so far. More likely, the best they will get is a bull leg in a trading range. They will probably not be able to form a strong bull trend day. If this is a trading range open, bulls will look to buy a double bottom. Bears will look to sell a double top. Many will scalp most of their position until a trend clearly begins.
Pre-Open Market Analysis
The Emini is in a bull trend on all higher time frames. There are magnets above around 2200 and up to 2220. Hence, the Emini will probably go higher. Yet, the rally is very late on all time frames, and there are also potential Final Bull Flags. This increases the chances that the current rally will fail to get above resistance. Furthermore, it increases the chances of a reversal.
If the Emini reverses, it will probably fall 2 – 5%, which is 40 – 100 points. Because the trend is in a tight channel on the weekly chart and there are 7 consecutive bull trend bars, the odds are that any reversal will be minor. Therefore, bulls will buy the selloff, correctly expecting at least a test back up.
The Emini had a brief rally yesterday and then entered a tight trading range. The bulls are hoping for trend resumption up today and the bears want a trend reversal down. Yet, with so much tight trading range trading for a month, the odds are that today will be mostly a trading range day.
Emini Globex session
The Emini traded in a narrow range overnight. Traders often say, “Never short a dull market.” They know that a quiet rally on the daily chart like this might suddenly break to the upside and suddenly become a strong bull trend. With targets from 2200 to 2220, there is at least a 40% chance of a strong bull breakout. Yet, if it happens, there is a 60% chance that it would be an exhaustive buy climax. Hence, they would see the rally as a vacuum test of resistance. Traders would then be prepared to sell a strong reversal down.
Forex: Best trading strategies
The daily chart is breaking strongly above the 7 week trading range. The bulls want today to close near its high. They especially want tomorrow to be a bull trend day. If so, the odds would favor a Measured Move up, based on the height of the trading range. That rally would go above the right shoulder of the Head and Shoulders Top (HST), and trigger stops for the bears. Once a bear trend ends, the market is then usually a trading range, but sometimes it can be the start of a bull trend.
Wedge Bear Flag
Even if today closes on its high, the bears would still have at least a 40% chance of making the breakout fail. Yet, if tomorrow also is a strong bull trend bar, the odds for the bulls getting at least a 2nd leg up and a Measured Move up would go up to 60%.
The bears see the breakout at the 3rd leg up in a Wedge Bear Flag (red line). They also see it as a 2nd leg up in a big trading range, after the August 2 1st leg up. They know that as long as the EURUSD Forex chart stays below prior major lower highs, it is still in a broad bear channel. Furthermore, this is true even when there is a strong rally, like today.
The bears will try to put a big tail on the top of today’s bull trend bar. They also want today to close back below the top of the trading range. Most of all, they want a bear trend bar tomorrow. Therefore traders will conclude that the breakout would likely fail. Hence, traders would assume that the chart would then have a couple of legs down. Traders would therefore expect that the 18 month trading range would continue.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Yesterday was an island top. Yet, today was a small entry day for the bears. While today closed near its low, the bears still need follow-through selling tomorrow.
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.
On days like this, when the market is in a 6-8pt range for most of the day, it is difficult for me to find those setups where I can make 2pts on one lot and 4pts on my second lot. Should I reduce targets on days like this, maybe to 1pt and 2pts? As a result, does this mean I should also reduce my stops?
I usually like to risk 1pt on my first lot and 2pts on my second lot. If instead I exit both at -1pt, but I’m only taking profits at +1pt and +2pts, the math does not feel to be in my favor as much as I would like (assuming a win rate of 50%). Do I simply need to find a different style on days like this?
Thanks for all you do!
When the Emini is in a triangle or any other type of tight trading range, it is easier to make money entering with limit orders, using wide stops (3 – 4 pts), and scaling in. All 3 of these are difficult for traders starting out. I think that it would be very hard to make money using a 1 pt stop on a day like today. However, there were several stop entries where a trader could have made 1 pt while using a 2 pt stop. Some days require more work.