The Emini opened within Friday’s tight trading range and began with more tight trading range price action. Swing traders are waiting for a strong breakout with follow-through up or down. The Emini broke above Friday’s all-time high by 1 tick and immediately pulled back.
This has been a limit order open and it increases the chances that today will continue the trading range price action of Friday. It also increases the chances that any swing up or down will probably not get very far before entering a trading range. Day traders need a strong breakout with follow-through to end this price action. Until they get it, they will be quick to take profits and mostly scalp. The absence of consecutive strong trend bars increases the chances that any move up or down is simply a leg in a trading range instead of the beginning of a trend.
At the moment, the Emini is Always In Long, but in a weak rally. It has not had a close below the moving average in 30 bars, which is good for the bulls. The bulls need a strong breakout soon. Without it, the bulls will take profits and wait to buy lower, and the bears will begin to sell below bars, betting on a swing down from a failed breakout above yesterday’s high.
My thoughts before the open: How to trade futures when a breakout is weak
The Emini broke to a new all-time high last week, but the breakout was with a small doji bar on the daily chart. This is not how strong breakouts typically look. While it is possible that the ascending triangle of the past 4 months simply bends up and becomes a bull channel, it is more likely that either one side or the other gives up and the Emini forms either a bull breakout or a reversal down.
Until then, the price action trading strategy is to expect mostly trading range trading, with the swings each day not going very far. However, this will probably change soon because the tight trading range on the daily chart has lasted about 100 bars, which is already unusually long. The odds that there will be a breakout are increasing with every bar that gets added to the candlestick pattern.
The rally last week was the 2nd push up from the May 6 bottom of the current rally. Trading ranges often only have 2 legs up and down. However, the 2 legs so far are strong enough to get one more push up before a pullback. If the Emini gets that one more push, then there would be a wedge top, and this would probably be followed by a couple of legs down on the 60 minute chart.
The bulls had a chance at creating a gap up on the weekly chart today, and it still might happen, but the Globex session currently lacks momentum and is trading about 4 points below Friday’s high. This is disappointing for the bulls. Disappointment is a hallmark of a trading range, and this increases the chances of trading range trading today.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The bar on the daily chart was a bull candlestick and it was a continuation of the breakout above the 4 month trading range. Although the Emini pulled back after the wedge channel, today was a small pullback bull trend day and a trading range is more likely than a bear trend tomorrow. The bulls want more follow-through buying, and they might get it, but after a climactic wedge top today, the Emini will probably have at least a couple of hours of sideways to down trading that will probably start within the 1st hour. Because today’s rally was a small pullback bull trend, there was very little selling pressure. This makes a bear trend tomorrow unlikely until after the bears generate more selling pressure. Once they do, they might be able to create a credible top, like a major trend reversal.
The 60 minute chart has had 12 bars without a bear body. This is occurring late in a 60 minute rally. It is therefore more likely an exhaustion gap than a measuring gap, and it means that the odds favor at least a 60 minute tight trading range tomorrow instead of a strong bull trend from the open.
Best Forex trading strategies: Dollar oversold
Traders learning how to trade the markets are faced with an interesting daily chart of the EURUSD. May has had 3 pushes up and is testing the February Final Flag, but this 3rd push up is especially strong. This increases the chances that it is a breakout above the low 2 of the 1st half of the month, and it reduces the chances that it is a month long wedge top.
However, the odds are that May will be a small trading range. It is at the same price level as the February triangle, and there have been a lot of reversals on the 60 minute chart. The 60 minute rally looks like it is strong enough to have another new high, but it could begin channeling down to the 1.1065 bottom of the May channel at any time. Reversals are coming quicker and the best Forex trading strategy for beginner wanting to trade Forex for a living is to take what the EURUSD is giving and not expect too much yet. The market needs a strong bear breakout before daytraders will look for big swings. Until then, daytrading will be mostly Forex scalping.
The USDCAD has a wedge bottom on the daily chart, but the pattern is relatively flat. The market is trying to bounce for a couple of legs up. The bears do not mind a bounce as long as they can then create a breakout below the wedge, which would probably lead to 2 legs down. It is currently more likely that the bulls will get 2 legs up.
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.