The S&P Emini futures contract sold off on the open and created a trend from the open bear trend. It fell below yesterday’s higher low, which is a sell signal. However, the price action for two days has been one of failed breakouts, so the down side might be limited to a test of yesterday’s low. Online daytraders want to see if there is a strong breakout with follow-through before changing their futures trading strategies. If they get it, which is not yet likely, swing traders will be willing to hold shorts for a possible bear trend day.
The selloff has been strong enough so that the first reversal up will probably be limited. Until there is a strong bear breakout below yesterday’s low, the odds still favor more trading range trading. The bulls will need a 2nd entry buy or a strong reversal up to convince traders that this is just a sell vacuum test of the support of yesterday’s low.
My thoughts before the open: Daytraders expect more trading range price action
The S&P Emini futures contract is still near the top of the 3 month trading range, and the dominant price action pattern is the tight trading range on the weekly chart. The Emini futures contract is still in breakout mode. If it does not breakout soon, it will then test down to the bottom of the trading range again. The week so far is inside last week, and it might remain that way and create an inside candlestick on the weekly chart, within a 3 month tight trading range. There will be a breakout soon.
Yesterday ended with a higher low major trend reversal, but there was no breakout. There was a bear breakout in the Globex session, but the Eminis are back to near yesterday’s close and the head and shoulders bottom pattern will still be present when the day session opens. It does not matter that the Globex session looks different. Online traders usually pick one chart to day trade and sometimes the patterns are different, but the trading results are the same over time.
The Emini futures day session has been in a tight trading range for 2 days on the 60 minute chart and is in breakout mode. Most of yesterday’s trading was sideways, despite the broad bear trend channel. Whenever the candlestick pattern is confusing, the market is in a trading range. I do not have an opinion about direction before the open, and this tells me that online day traders will mostly buy low, sell high, and scalp. The daytrading tip for today is to expect more trading range price action, but be ready for a breakout in either direction.
Traders learning how to trade the markets should try to find an early swing setup to buy or sell. Yesterday had the strong selloff at the open and then the lower low major trend reversal after 11 a.m. These are the candlestick patterns that offer the best trading for beginners.
Online currency traders should look at the USDCHF this morning. Although the Forex price action is strong for bulls, traders learning to trade Forex markets should patiently wait for a pullback because the rally is climactic, and the pullback might last 20 or more bars. The EURUSD is also weak against the dollar, and the best Forex trading strategy is the same there as well. Traders will be looking to trend resumption after a pullback. If the pullback grows to 30 or more bars, the probability of trend resumption falls close to 50-50, but at the moment, the dollar bears still have the edge.
Summary of today’s price action and what to expect tomorrow
Although the S&P Emini futures contract has been staying just below the all-time high without breaking out, it is not reversing down either. Online daytraders today saw a strong bull trend reversal up from a 2 day expanding triangle bottom. They had a swing trade down from the open and then up from the low.
The pullbacks were small and this increases the chances of follow-through buying on the open. However, this rally was climactic and in channel for 5 hours, and this means that there is a 70% chance of a couple of hours sideways to down tomorrow, even if there is a early rally. The swing trading strategy for tomorrow is to look for a sell setup and a swing trade down for an hour or two. The other day trading tip is to be ready to buy early if there is some follow-through buying from today. If so, it could b happen quickly and and last for only 3 – 5 bars.
Traders learning how to trade the market should notice that today traded below yesterday’s low and above its high. This candlestick pattern is an outside day. Since it formed within a 3 week trading range, the odds are that this is just a reflection of the uncertainty that is inherent within a trading range. It is not as bullish as it would be if it was reversing up from a selloff. Trying to make more of the candlestick or technical analysis is not helpful. Traders will wait to see the breakout. If there is an early breakout up or down, it will probably reverse after an hour or so.
Because the market is just below the all-time high, there is always the possibility of a new all-time high. Since the Emini has been in a tight trading range for months, the breakout could be big and fast. However, the weekly tight trading range will probably be the final bull flag in a trend that has lasted for more than 100 bars on the weekly chart.
The Forex trading strategy from before today’s Emini open of buying a pullback in the EURCHF worked well. The best Forex strategy for someone learning to trade Forex markets is to not buy too high tomorrow. The EURCHF had a big spike and channel bull trend with several buy climaxes. The odds are that it will have to correct at least 10 bars and 2 legs. Since the pattern is also present on the 15 minute chart, the correction will be at least 10 bars there as well. It probably will begin in the Asian markets tonight. A spike and channel bull trend usually has a bear breakout, and then it usually forms a trading range.
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.