Emini and Forex Trading Update:
Thursday August 15, 2019
I will update again at the end of the day.
Pre-Open market analysis
Yesterday was a strong bear trend day, and there was very little overlap with Tuesday, which was a strong bull day. This is a bull trap and it increases the chance of lower prices.
However, these big reversals up and down on the daily chart create confusion. That will probably result in the Emini continuing in a trading range for at least a couple more weeks.
I wrote over the weekend that last week was a weak buy setup on the weekly chart. I said that there would probably be more sellers than buyers above its high. And there were. This week might even go outside down.
I mentioned last week that the Globex Emini traded below 2800 but that the day session did not. That is a Big Round Number and a magnet. I said that these factors increase the odds that the day session would have to trade below 2800 as well.
Was yesterday the start of that test? Well, nothing is clear in a trading range. The only thing that traders believe is likely is that every strong move up or down will soon reverse and not lead to a trend. Bottoms and tops typically are not clear.
What will happen today? The bull trap on the daily chart and the magnetism of last week’s low and 2800 makes at least slightly lower prices likely within a few days. But day traders have to be ready for anything when the daily chart is in a trading range. After yesterday’s sell climax, there will probably be at least a couple hours of trading range price action. Since there are now 2 legs down from last week’s high, today could even be a bull trend day.
Is inverted yield curve a buy signal?
Yesterday was the 1st time in 10 years when the interest rate on the 10 year note was less than that on the 2 year note. This is an inverted yield curve. That is important because an inverted yield curve typically leads to a recession.
But that recession usually begins 1 – 2 years later. In fact, once the yield curve inverts, the stock market is up an average of 12% one year later. Therefore, one could argue that it is a buy signal for the next year.
Overnight Emini Globex trading
The Emini is up 11 points in the Globex session. Since yesterday was a sell climax day, there is a 75% chance of at least 2 hours of sideways to up trading that starts by the end of the 2nd hour today.
Traders know that the daily chart is in a trading range. They expect bad follow-through after strong trend days up and down. Yesterday closed on its low and had very little overlap with Tuesday. Tuesday was a big bull day. That type of bull trap typically has follow-through selling for at least a few days.
But context is important. The daily chart is in a trading range. Traders expect reversals and not trends. That reduces the chance of a follow-through bear trend day today. Day traders will be ready for anything today. However, they are confident of at least a couple hours of sideways to up trading at some point.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart has two consecutive bear bears days, which typically means that there will be at least a small 2nd leg down. But the rally to the August 6 high was strong and it was a surprisingly strong reversal up from a breakout below the 5 month trading range. That makes a 2nd leg sideways to up likely.
I have been writing over the past week that the bears might get a test of the May low at the bottom of the 5 month range before the bulls test the July 11/July 19 double top. That is what is likely at the moment.
The bears want the August rally to be just a bear leg in the yearlong bear channel. They need several more bear days before the probability shifts in their favor.
After 2 big bear days, the bulls will likely need at least a micro double bottom before they can begin a 2nd leg up from the August low. Also, the May low was the bottom of the trading range for 4 months. It is therefore an important price. This selloff might have to get closer to that 1.1108 low before the bulls will aggressively buy again.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart has been in a 25 pip range overnight. It so far is within yesterday’s range. However, traders expect at least a little follow-through selling after 2 big bear trend days. It might come today. A third consecutive big bear trend day is unlikely since the daily chart is near the bottom of its trading range.
Consecutive big trend days often lead to exhaustion. Therefore, today might remain small and day traders might continue their overnight scalping. Can today be a big bull trend day? That is unlikely after a breakout with 2 big bear days.
With day traders knowing that a big trend day up or down is unlikely, they expect to scalp all day today.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
The Emini was in a trading range for most of the day. The bears got a parabolic wedge selloff that began around 10:30, but it was a sell vacuum test of last week’s low (not shown).
I have been saying that the week might go outside down. However, there is often a sharp reversal up from just above the low of the prior bar.
This is true for any higher time frame. Today was an example of it. The selloff was simply a sell vacuum test of last week’s low. Once traders concluded that the bears would fail to break below last week’s low, the bears bought back their shorts and the bulls went long.
Tomorrow is Friday so weekly support and resistance can be important. The bulls want a close above the open of the week to put a bull body on this week’s candlestick on the weekly chart. The open of the week might be too far above to reach tomorrow. Instead, the bulls will try to get the week to close above its midpoint.
The Emini is still near last week’s low. Consequently, the bears might try again tomorrow to create an outside down week on the weekly chart. Whether or not they succeed, the Emini will probably continue in a trading range for at least a couple more weeks.
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
Traders can see the end of the day bar-by-bar price action report by signing up for free at BrooksPriceAction.com. I talk about the detailed S&P Emini futures price action real-time throughout the day in the BrooksPriceAction.com trading room. We offer a 2 day free trial.
Charts use Pacific Standard Time
When I mention time, it is USA Pacific Standard Time (the Emini day session opens at 6:30 am PST, and closes at 1:15 pm PST). You can read background information on the intraday market reports on the Intraday Market Update page.