The Emini opened in the middle of yesterday’s range and began with a trend from the open bear trend. The bears want another breakout below the June low for another monthly sell signal. The bulls expect that this is a trading range day and expect that the test down is a bear leg in what will become a trading range. The follow-through after bear bars has been disappointing, and disappointment is a sign of a developing trading range.
As I am writing, the Emini is Always In Short, but it is trying to reverse up from above the June low in a parabolic wedge. It is close enough to the June low so that the 1st reversal up will probably fail. Also, the buy signal bar for the parabolic wedge has a tail on top. The odds are that the Emini will have to get within a tick of the June low or below the June low before the bear leg will end. Because the bear channel is tight, bulls should wait for a 2nd buy signal and a good buy signal bar, or for a strong reversal up for 3 or more bars.
Until then, the bears are in control, but the odds favor an early low of the day around the June low and then a swing up for at least a couple of hours. Less likely, today will be a strong bear trend day and break below yesterday’s low.
My thoughts before the open: Best candlestick patterns need follow-through
I mentioned after the close yesterday that there was a 75% chance of a couple of hours of sideways to down trading today because yesterday’s reversal was so climactic and lasted so long. The reversal began just after yesterday’s close and continued all night. As long as the Emini stays below the gap on the daily chart, the odds slightly favor the continued selloff down to the monthly moving average, which is about 10% below the all-time high. If the Emini breaks back above the top of the gap, it will try for a new all-time high. However, even if there is a new high, the odds are that the bull breakout will be limited and that the Emini will reverse down to the monthly moving average.
Yesterday triggered a monthly sell signal by trading below the June low. The bulls bought the low. However, there is still a lot of time left to the month, and although the monthly candlestick pattern was a reversal bar at yesterday’s close, it is early in the month. It could still become a huge bear entry bar.
The Emini is waiting for news about Greece. If the news is good, it could get above the gap and possibly rally to a new high. However, that rally will still probably. There is an 80% chance of a selloff to the monthly moving average no matter what happens. The question is whether the selloff has begun, or whether the current selling is just another leg within a trading range. Until there is a strong bear breakout, it is still a bear leg within a trading range. However, news from Greece could provide the trigger for the strong bear breakout. Once the bear breakout is triggered, then the technicals take over. Traders will conclude that the correction has begun, and then the debate will be about whether it will be a 10% or 20% correction.
Because last night’s selling retraced so much of yesterday’s rally, the odds favor a trading range today. Yesterday had a big range and today will open in the middle of the range. Today might end up as an inside day for its candlestick pattern. Yesterday’s range was so big that even if today is a trading range day, the legs within it will probably be big enough for swing trading strategies, which should offer good day trading for beginners.
Since a trading range is more likely than a breakout above or below yesterday’s range, online day traders will be looking for buy setups after selloffs and topping patterns after rallies. They will initially be looking for swing trades up and down, but if the swings become small, they will switch their day trading strategies to scalping.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The daily chart of the Emini is Always In Short, but it is still in its trading range. The bulls need a reversal up above last week’s gap down. Because they know that most breakouts fail, they are willing to buy down here, despite the early bear trend on the daily chart.
The Emini is waiting for news on Greece. When it comes out, the Emini will either rally above the gap or break below the trading range, which is slightly more likely, given the buy climax and sell signal bar on the monthly chart. Even if the bulls succeed, they will ultimately fail because of the buy climax on the monthly chart. There is an 80% chance of a test below the monthly moving average this year whether or not the bulls get one more new high.
The bulls are hoping that today formed a double bottom at the 200 day moving average. However, since the Emini is going to fall this year, traders have to be ready for bear surprises, like a big gap down below the moving average. While not likely, traders learning how to trade the markets should always try to think about things that are unlikely because when they occur, they can lead to big trends. If a day trader does not think a move is possible, he will watch it all day, expecting a reversal, and miss a great trend.
Best Forex trading strategies
All of the Forex markets was waiting for Greece and are in breakout mode. There will probably be a breakout with follow-through within the next few days. Until then, day traders who are trading Forex for a living will be scalp Forex markets, and looking for brief Forex swing trades.
Online day traders learning how to trade the markets can see that the EURUSD had a strong rally late yesterday and has been in a trading range since. It had a 2nd push up last night and is deciding whether it will have a 3rd push up to a wedge top on the 5 minute chart before entering a trading range, or if the trading range has already begun. While it is possible that there could be a strong bull breakout above yesterday’s high and then a measured more up, it is more likely that any breakout will be a bull leg in a broad bull channel, and Forex day traders will trade in both directions.
The USDJPY is having a bear breakout below a small wedge bull flag on the daily chart, and there is a Final Bull Flag below around 120, which is pulling the market down. The 5 minute chart is in a broad bull channel and the selling has been climactic. The odds are that the rallies will get stronger and the price action will convert into a trading range today. The bulls are hoping for a major trend reversal, but they will probably need to go sideways for several hours to increase the buying pressure. Until then, any rally will probably be just a bull leg in a trading range.
The USDCAD 60 minute chart has been in a tight bull channel for almost a month. It has been sideways for a couple of days after a buy climax yesterday. The bulls are hoping for another leg up, but after a sell climax, a trading range is more likely. There has been a strong rally for the past couple of hours, but it is within the developing trading range. It is strong enough for online day traders to look to buy the first pullback.
The 5 minute chart of the USDCHF had a strong rally 2 hours ago, and it is strong enough so that traders will look to buy a pullback. However, the rally is still below yesterday’s high, and the bears are hoping for a double top. It is also at the top of a 5 day trading range. The bulls are hoping for a breakout and a measured move up, but most trading range breakouts fail. This rally is strong enough to make it likely that the bulls will test up and try for the breakout at least one more time after any pullback.
The EURCHF 60 minute is also in a bull channel. The 5 minute chart rallied strongly over the past 2 hours, and traders will bull pullbacks.
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.