The Emini futures contract opened with a gap up, but it immediately sold off to the moving average. The bulls are hoping for an opening reversal up and the low of the day, but the selling was strong enough up so that the first rally will probably result in a trading range and not a strong bull trend.
Then bears are hoping that this is a failed breakout above yesterday’s high and a failed test of the top of the 3 month trading range. However, the market is finding support at yesterday’s tight trading range. The bears need a strong breakout below that range.
Although this selloff made the Emini futures contract Always In short, and the first rally probably will be sold, this is a trading range opening and it increases the chances of a trading range for the first hour or two and possibly for most of the day. Online daytraders will be mostly scalping unless the bulls get a strong reversal up or the bears break strongly below yesterday’s trading range.
My thoughts before the open: Futures trading strategy is to be ready for a trend
The S&P Emini futures contract will probably gap up today. Although it is at the top of a trading range on the daily chart and it might form a double top with the April 15 high, online day traders need to be prepared for a possible breakout to a new all-time high. I have talked about this in the price action trading room and I have written about this lately. All higher time frames of the S&P Emini futures contract are in bull trends. The candlestick pattern on the weekly chart is a tight trading range, but it is above the moving average. February through April is a bullish time of the year, and it has been bullish this year.
However, I believe that the breakout will fail within a few bars on the weekly chart and the tight trading range will become the final bull flag. The correction down will probably be at least 10 bars and have at least 2 legs on the weekly chart. The leg down might still be followed by one more new high and then a major trend reversal before the Emini futures contract tests down to the October low.
So what is the price action trading strategy today? The S&P Emini futures contract is testing the all-time high. It is therefore in breakout mode, and the futures trading strategy is to be prepared for a breakout or a reversal, and the move can be strong. Traders learning how to trade the markets know that a big gap up increases the chances of a trend day…in either direction. If there is a strong breakout up or strong reversal down for a couple of bars, it will probably have follow-through. However, a big gap up means that the S&P Emini futures contract is far above the average price (the moving average), and that usually limits the upside. There can be a rally that lasts up to an hour, but if that happens, the Emini will then probably trade sideways to down to test the moving average. If instead it simply reverses down with two or more strong bear trend bars, it could become a trend from the open bear trend. The Emini futures contract has had many trend from the open days lately. This increases the chances of one today.
The day trading tip for today is that online daytraders should be prepared for a possible trend day in either direction. If one begins to develop, traders should try to swing at least part of their position. Even though the Emini futures contract is at the top of a 3 month trading range, I believe that the price action slightly favors the bull breakout. If it happens, the rally could be very strong for several days after many months within a trading range.
Forex trading for beginners will probably be limited to Forex scalping. The Forex price action is losing momentum. After a huge trend in the dollar, the best Forex strategy is to expect smaller trading range days. The odds still favor bull trend resumption for the dollar, but the more bars that get added to the trading range on the daily chart. the better the odds are for the bears to get a reversal. However, if the bears are successful, any reversal down on the daily chart of the dollar will probably become simple a bull flag on the monthly chart.
Summary of today’s price action and what to expect tomorrow
The Emini futures contract is at the top of a 3 month trading range and it sold off on its test of the top of the range and of the top of the breakout from the March FOMC meeting. The day ended with a higher low major trend reversal and the bulls will try for a 2nd leg up early tomorrow.
Online daytraders today had many trading opportunities if they could use limit orders and scale in and scalp. Even after the first strong bear bars, the intraday trading strategy for bull scalpers was to buy every new low and add on lower. The bears held for swing trades all day, and every rally, no matter how strong, failed to go above the most recent lower high. Their swing trading strategy was to sell every strong rally and put a stop above the top of the prior bear leg.
The best Forex strategy today was to swing trade the Euro against the dollar or yen. The USDCAD also had an early rally that had a 50% pullback. Online currency traders bought the pullback for a swing trade back up to the earlier high.
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.