The Emini opened with a trend from the open bear trend. Since the selloff fell almost 9 points, which is a lot, and the 60 minute moving average is just above, the odds of a bull trend day are less. Because the 60 minute chart is so oversold and tomorrow is an FOMC report, the odds of a bear trend are less. This makes a trading range day likely. The bars and range are big enough for swing trades, but a big trend is not likely.
Traders will look for 2nd entry buy setups after selloffs and 2nd entry sell setups after rallies. They will also enter on strong breakouts up or down, but will be hesitant to buy a strong 2nd leg up or sell a strong 2nd leg down because the risk of 2nd leg traps is great when a trading range is likely.
At the moment, the Emini is Always In Short, but the odds of a trading range are greater than those for a bear trend, and bulls will be looking for a low within the first 2 hours for a swing trade up, possibly from around yesterday’s low. However, if the Emini continues to sell off, traders will accept the bears winning and then swing trade shorts.
My thoughts before the open
I wrote last night that today would probably rally because the selling has been so climactic and the Emini probably has to get more neutral today and Wednesday going into the end of the month. It also is trying to get more neutral before tomorrow’s 11 a.m. FOMC announcement. At the moment, the Globex Emini chart is up 9 points, which would close to the 60 minute moving average when the day session opens.
A gap up would create an island bottom, but gaps up and down are common within trading ranges (the Emini has been in a trading range for 7 months), and there has already been an island top and an island bottom over the past couple of week’s. Until there is a breakout of the range, there is no breakout, and all of these strong moves up and down are all likely to fail. One finally will succeed, but that one has yet to form.
Strong trends usually do not reverse into strong opposite trends (although that happened last week after the new all-time high). The odds are that the rally that began at the end of yesterday will be a bull leg in a trading range. Since the selloff was about 65 points, a 50% pullback could be 30 to 40 points, so the trading range could have legs that are big enough for swing trades.
The Emini will open around the top of the trading range of early July. The top of a trading range is resistance. The bulls need a breakout above 2080 . If they get it, the next resistance is the bottom of the July 15 pullback at around 2095. Both prices are within the 60 minute gap (strong 2 hour breakout) of July 24, and a gap is always a magnet. Also, the July 15 gap on the daily chart is still a magnet, and it is also in this same area.
The candlestick pattern on the 5 minute chart yesterday was a double bottom, and it contained enough bars to be a major trend reversal. The first target is a measured move up, which is around 2083, and that is around the 60 minute targets. The bulls first have to get above the 60 minute moving average, which is around 2077. Since the 60 minute bear trend was so strong, the first test of the moving average will probably be sold. This means that there might be a pullback to around yesterday’s high (a breakout test) before a test of resistance above 2080.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
As I wrote yesterday, today was likely to rally because it was so oversold on the 60 minute and daily charts, and there is an FOMC report tomorrow and Friday is the last day of the month, and the monthly candlestick pattern is important. However, no one knew how big the rally might be. The 50% pullback is still several points above and the bulls might get there tomorrow. After a buy climax day like today, there is a 75% chance of at least a 2 hour sideways to down move on the next day. There is often follow-through buying for the first hour or two.
Best Forex trading strategies
The wedge rallies on the 240 minute Euro Forex candlestick charts began to reverse last night. A wedge reversal usually has at least 2 legs. Last night was the first. The Forex trading strategy for those who trade Forex for a living will be to look for a swing trade for a second leg. While there will be Forex scalping during the pullback, the math is better for swing trading the 2nd leg.
While the selloff in the 240 minute candlestick chart of the EURUSD is currently also just a pullback to the moving average and a test of the breakout above the last higher high in an early bull channel, the wedge top is a lower high in a broader bear channel, and last night’s selloff was strong enough to that there are probably sellers above. The best the bulls can reasonably hope for is a trading range today and maybe all the way up to tomorrow’s FOMC announcement at 11 a.m.
The overnight reversal on the 5 minute chart of the EURGBP was even stronger. The candlestick pattern is the same on the 240 minute chart as on the EURUSD chart. There has a 23 legged rally to a lower high, which is a wedge bear flag. Last night reversed down to the moving average. The selloff was stronger than on the EURUSD. The pullback in the EURGBP fell back below the breakout point, and the 5 minute chart had a tight channel bear trend. Although the selling was climactic, those learning how to trade the markets should look to sell rallies unless there is a strong reversal back up today. If so, it might be strong enough for a swing trade on the long side.
The 240 minute USDCAD is in a tight trading range after a small pullback bull trend. The bulls are exhausted, but there might be one more bull breakout before a swing trade down. If so, the tight trading range will probably be the Final Bull Flag. Instead, there might simply be a strong bear breakout that leads to at least 2 legs down, but the big move might not come until tomorrow’s FOMC report.
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.