Yesterday was a bear reversal day on the daily chart and a sell setup for a lower high major trend reversal. When the Emini traded below yesterday’s low, it triggered the short on the daily chart. On the 5 minute chart, it fell below twice and reversed up both times at the 60 minute moving average. Also, bull scalpers were able to make profits if they bought below bars. This is not typical of bear trends and that means a trading range is more likely than a bear trend.
The bears are hoping that the early bull reversal will form a double top bear flag with the high of the first bar of the day. They then want a breakout to a new low and then a measured move down.
Since the selloff of the past 30 bars has been within a tight channel, this reversal up will probably need a test down to form a major trend reversal if this is to become a bull trend day. Most likely, the Emini will form an early trading range and decide between the double top bear flag and a major trend reversal up.
At the moment, the market is always in long, but it will probably test down soon, which means that it will probably enter a trading range within the next 10 bars.
My thoughts before the open: Trading range after a buy climax
Yesterday began to turn down after 4 pushes up. This is a low 4 short setup in a probable trading range. The pullback was so deep after the FOMC breakout that it was a sign that there were a lot of sellers below the all-time high. This increased the chances of a big trading range, lasting possibly as long as a week or two. From there, the bulls will try for trend resumption and a measured move up from the breakout on the FOMC news. The bears will try for a major trend reversal down on the test of the all-time high.
The deep pullback and week rally over the past week are price action that is more common within trading ranges than trends. The pullback that began at yesterday’s close could test the pullback after the FOMC breakout, down around 2080. From there, the bulls would buy, looking for a double bottom bull flag. The bears would try for a reversal down.
Since this looks like a trading range, traders learning how to trade the markets should expect more trading price action again today and until the test of 2080. If the Emini gets there, it will again be in breakout mode.
Although the odds favor a trading range, traders should always be ready for a swing trade. If there is a strong breakout with follow-through, the probability of a trend for at least several more bars becomes high.
Summary of today’s price action and what to expect tomorrow
The Emini triggered the short on the daily chart by trading below yesterday’s low. The market probably has been in a trading range on the 60 minute chart since the FOMC news, and the bottom of the range might be the bottom of the pullback that followed the announcement. It is around 2075. If the Emini gets there, the bulls will try for a double bottom bull flag and a measured move up. The bears want a breakout below that support and then a measured move down,
See the weekly update for a discussion of the weekly chart and for what to expect going into next week.