The Emini gapped up and closed last weeks gap down from last week’s 2 day island top. It is a trend from the open bull trend and the first reversal down will probably be bought. However, this rally is testing the breakout point on the 60 minute chart for last week’s selloff, and a trading range is likely after last week’s 60 minute spike and channel top. The Emini will probably soon enter a trading range that will last at least an hour. From there, bulls will want trend resumption up and bears will want trend reversal down.
The market is currently Always In long with no sign of a top, but a trading range is likely soon. There was bad follow-through after a couple of strong bull bars, which happens more in trading ranges. Swing traders are still long and will stay long unless there is a strong top. There is a chance that this rally could be the start of a big bull trend day, but a trading range over the next couple of hours is more likely.
My thoughts before the open: Online day traders will look for a trading range
Friday’s selloff tested the bottom of the 60 minute channel and reversed up, as expected. Trading ranges usually follow Spike and Channel trends and that makes a trading range likely today. The daily chart is in a 3 month trading range, and that range is within a 6 month trading range. The higher time frames are in breakout mode and the range is getting very tight.
Although the odds favor a selloff down to the October lows at some point this year, the S&P Emini futures contract is holding above moving averages on all higher time frames. This means it may have one more new high first. That debate is what is causing the tight trading range. Most traders expect the selloff, but no one knows yet if the S&P Emini futures has gone too far up yet. It still can have one more leg up on the daily chart. If so, it probably will be brief, but it might be surprising big. A reversal would create a climactic top on the daily chart and traders learning how to trade the markets would correctly see a wedge on the weekly chart.
Today will probably gap up to around measured move targets based on Friday’s late rally. The trading tip for the day is to look for s reversal down within the first hour or two because the S&P500 Emini futures contract is within a trading range and traders have to expect disappointment. A big gap up and a rally on Friday will makes bulls hopeful. What would create disappointment? A two hour sell off starting within the first hour or two, so looking to sell the reversal is one of the swing trading strategies traders will use.
If instead the market rallies strongly and has follow-through, the futures trading strategy is to swing trade from the long side. However, this is lower probability, given the 60 minute candlestick pattern (trading range after a spike and channel bull trend).
Will there be a high probability trading strategy today for online day trading? If today has a lot of trading range price action, traders should expect confusion, which means that most setups will not quite look good enough…they will not look like they are high probability setups. This often makes trading for beginners difficult. They should patiently wait for candlestick patterns with stop entries and good signal bars. If a reversal comes after a strong leg, wait for a 2nd entry
Forex trading for beginners will probably be harder today because trading ranges are likely there as well. All Forex markets are trying to bounce against the dollar, but they have done so for a few days and will probably pullback today. Online currency trading today will probably be mostly scalping. The Forex trading strategy, like for the Emini futures, will be to buy low, sell high, and scalp unless there is a strong breakout. Then traders learning how to trade Forex markets will swing part or all of their positions.
Summary of today’s price action and what to expect tomorrow
The S&P Emini futures contract is at the top of its trading range on the 60 minute chart, and the high probability trading strategy was to expect a lot of trading range price action and for the early rally to become a bull leg in a trading range.
The swing trading strategy on the 60 minute chart is to trade the developing head and shoulders top (lower high major trend reversal). Bears are shorting up here, knowing that the probability of more sideways trading is greater than that for a bear trend. Bulls are buying, hoping to trap bears by creating a breakout above today’s high, which is currently the right shoulder.
The market has been in a tight trading range on the weekly chart and is in breakout mode. The odds are that the market will test the October low this year, but there is no top yet. This might be a “Sell in May and go away” year where the market sells off through the summer, but there is no sign of that yet. Technical analysis and price action traders, however, know that this rally is extreme on the higher time frames and is likely to correct for more bars and points than what seems likely to most traders at the moment.
The Forex markets also had small ranges today, and the Forex trading strategy was so scalp for 10 pips. There were only a couple of opportunities, and this was not a good day of Forex trading for beginners.
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.