Yesterday ended always in long, and today began with a rally, but the bull trend bars were not big and there is resistance at the March FOMC meeting high and at last week’s high, both around the round number of 2100. This increases the chances that the rally will be limited. Yesterday had a 4 hour trading range. The market is at resistance. The selloff Monday was strong. This all increases the chances for a lot of trading range price action today. Day traders will be quick to take profits.
At the moment, the rally is weak. This increases the chances of an early high of the day or of at least a pullback and an attempt at a double bottom. Bears need a 2nd entry short or a strong reversal down. Bulls need a much stronger breakout or a pullback. This means traders are looking to buy lower and sell higher. This is trading range price action, and a trading range day is more likely than a trend day.
My thoughts before the open: Trading price action in a triangle on the daily chart
Yesterday’s strong reversal followed a 6 bear bar micro channel on the 60 minute chart. The market went up big, down big, and up big. Day traders learning how to trade the markets recognize this as trading range behavior. Emini futures traders are trading price action in a triangle. Although yesterday’s bull reversal was strong, the odds favor a trading range after whatever swing there is on the open.
The trading tip for online trading of the Emini S&P today is to be prepared to buy low, sell high, and take quick profits. Day traders will be quick to take profits. The usual day trading strategy is to always watch for breakouts. If there is a strong breakout in either direction with strong follow-through, swing traders will hold part or all of their positions. After last week’s strong reversal up, the price action trading bulls have a slight edge. The odds of one more all-time high are greater than the odds that the top is already in.
Summary of today’s price action and what to expect tomorrow
Today came close to the all-time high, but did not get there. The daily chart has a 3 month triangle as its candlestick pattern. Today also is a sell signal bar for a wedge rally over the past 2 weeks. The Emini futures are testing the top of the triangle. The location is great for the bears because they can short up here with a tight stop and a potentially big reward. That always comes with low probability…this means that they correctly expect to lose most of the time. Traders wanting a higher probability short have to wait for a stronger sell setup or for a strong bear reversal. Although the trend is up on all higher time frames, the market is at the all-time high, which is resistance. The odds favor a bull breakout. However, because the monthly chart is so overbought, the breakout will probably fail.
Since the all-time high is only about 10 points away, the breakout can come very soon. The Emini futures trading strategy is to buy the breakout if it looks strong, and wait to sell the reversal if the breakout looks weak. Even if the breakout is strong, it probably will not go very far before it fails.
The Forex price action was good today. The EURUSD Euro and USDJPY Dollar Yen were both strong. The Euro is very oversold on the daily chart and it is trying to bounce from a double bottom. Although the risk of buying on the daily chart is small, so is the reward and the probability. The Forex trading strategy is to buy for a trade and not for a swing. The best the bulls can hope for over the next several weeks is a trading range, and the bulls are trying to create a bottom of the range. The weekly and monthly trend is still down.
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.