The Emini got close to the top of the bear leg and broke above the 60 minute moving average, but reversed down. However, bull scalpers had 5 chances to make money in the 1st 5 bars, and the bear follow-through after the 2 bear bars was bad. This is trading range price action, and it means that this selloff will probably be followed by a bull swing and a trading range. The probability of this being the start of a big bear trend day is small at the moment. Traders need to see relentless trending price action up or down before they will conclude that a trend is underway. Without that, they will bet that swings up and down will be limited to 1 – 4 hours, and traders will trade in both directions.
At the moment, the bulls have an opening reversal from the moving average and a higher low major trend reversal, but without a strong bull breakout, the odds are that the developing trading range will continue.
Pre-Open Market Analysis
S&P 500 Emini: Trading range price action for 2 weeks
I have been saying since Friday that the sell climax down to support on the daily chart was likely to be followed by a trading range, which means about TBTL Ten Bars (2 weeks), Two Legs, sideways to up. I also said that a pullback on Monday or Tuesday was likely, which we got yesterday, and that the Emini would also probably go above last week’s high. This is still likely. The selling from yesterday continued last night, but the Emini reversed up 6 hours ago and it up about 7 points 30 minutes before the NYSE open. The odds are that the selloff will be limited because a 2nd leg up is likely.
Yesterday’s rally barely went above the January 19 lower high, but because it did, the odds are that the bear channel has evolved into a trading range. As with any trading range, traders sell new highs, and that is what happened. The bull breakout failed. The attempt at a new low will also probably fail. Traders expect that up and down will be limited after a sell climax down to support so they will buy low, sell high and scalp, which creates a trading range.
When the daily chart is in a trading range, more of the trading on the 5 minute chart also is usually within trading ranges. There will almost always be at least one swing up and down every day for the next week or two, but traders will expect most of the trading to be more two sided. When there is a swing, it will be weak, and traders will be able to make money most of the time trading in either direction. Counter-trend traders will mostly scalp and use limit orders, and many will use wide stops and scale in. When there is a strong breakout, like late yesterday, they will be more aggressive with their swing trading and enter on strong closes.
Forex: Best trading strategies
The EURUSD has been in a tight trading range for about 8 weeks. This means that day traders are confident rallies and selloffs will not go far, and they are therefore buying low, selling high, and scalping. The 60 minute chart sold off for 4 hours overnight, but it has been sideways in a 20 pip range for 4 hours. This makes it difficult for most day traders to make money, except scalping for 10 pips with limit orders, often scaling in, betting breakouts will fail, or waiting for brief breakouts, which they will trade for 10 – 20 pips.
When the EURUSD is in a tight trading range, it is easier to make money on the 60 and 240 minute charts, but there are far fewer trades. In general, traders are looking for reversals and 20 – 50 pips scalps.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini had an opening reversal at the moving average, which was also a higher low major trend reversal. The daily chart is in a trading range, which will probably last for at least a couple of weeks. The top of the range is probably around the top of the 60 minute wedge bottom, around 1940.
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.