FOMC, Alabama Moore vote, and tax reform test Trump rally
The bulls got early consecutive bull bars, but the rally did not break strongly above yesterday’s high and trading range. In addition, the bears got a strong reversal bar just after the breakout to a new all-time high. While the Emini is Always In Long, this is not a strong rally yet. The bulls need better follow-through buying.
The bears tried to reverse down from above yesterday’s high. Although they had a good sell signal bar, it followed 2 good bull bars. Most bears will therefore wait for a micro double top or 3 consecutive bear bars before shorting.
Since neither the bulls nor the bears have done enough to convince traders that they are in control, many swing traders are waiting for more information. They want either a strong breakout up or down with good follow-through, or a 2nd entry buy or sell signal. The balance so far reduces the chances of a big trend in the 1st w hours.
Pre-Open market analysis
Yesterday was a bull trend day and the Emini made a new all-time high. Because it closed around its middle, it is a sell signal bar for today. However, after 5 bull days, the odds are against a big selloff today, at least until after the 11 a.m. FOMC report.
The market will digest the Alabama Senate vote from yesterday. In addition, the FOMC announcement comes out at 11 a.m. today. Traders expect the Fed to raise interest rates today. However, they do not expect a significant change in the wording of the Fed’s statement.
The Emini often enters a trading range before the report. Most day traders should stop trading around 10 a.m. PST. The 1st breakout after the report has a 50% chance reversing within 10 minutes. Day traders should therefore wait until at least 11:10 a.m. before resuming trading.
Most FOMC reports over the past 2 years have led to trading ranges for the remainder of the day. However, there is an increased chance of a big trend up or down. In addition, the bars and legs can be big, and the reversals and breakouts can be fast. Because this increases risk, a day trader needs to reduce his position size after the report to keep his risk within his comfort zone.
Overnight Emini Globex trading
The Emini is up 2 points in the Globex market. Traders therefore are ignoring the loss of a republican senate seat. Instead, they are looking to the 11 a.m. FOMC announcement. Today will trade like any other day until around 10 a.m.
Then, most day traders should stop trading. There is almost always a breakout up or down on the 11 a.m. FOMC announcement. Since it reverses within 10 minutes 50% of the time, day traders should wait until after 11:10 a.m. before looking for trades again.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart has pulled back for 13 days in a tight bear channel. This is becoming an Endless Pullback. It is still a bull flag. That means that the odds favor an attempt to resume the November rally. Yet, if the pullback continues down for several more days, the odds of a bear breakout below the bull flag become as good as for a breakout above. Since it is now testing the November 21 major higher low, it is in the buy zone.
When a bull flag is in a tight bear channel, the bulls usually need at least a couple attempts to rally before they succeed. The pullbacks and bottoms in August, October, and early November are examples. If there is a rally from a tight bear channel, it usually is minor. This means that it can last a week or so, but it usually leads to a test back down to the bottom of the pullback.
Today’s FOMC announcement is a major catalyst. It therefore could lead to a big move up or down.
Overnight EURUSD Forex trading
The EURUSD 5 minute chart rallied 30 pips in the past few minutes. It is forming a micro double bottom with Friday’s low and a double bottom with the November 21 low. However, since the 3 week selloff is in a tight bear channel, the odds are that any rally will stall around 1.1800. The bulls will probably need a st least several sideways days before they can rally back up to the November high.
Since today’s 11 a.m. FOMC announcement is a major catalyst, most day traders should stop trading around 10 a.m. Because there is a 50% chance of a reversal from the initial breakout up or down after the report, day traders should wait at least 10 minutes after the announcement before resuming trading.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini had a one bar rally after the FOMC rate hike, and then went sideways. The bears triggered a lower high major trend reversal in the final hour. Today had a bear body on the daily chart. It is therefore a sell signal for tomorrow for a failed breakout to a new all-time high.
While today is a sell signal bar for tomorrow, it was not a big bear bar closing on its low. In addition, it followed 5 bull bars. It is therefore a low probability sell setup.
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.