The Emini opened with a huge gap down to just below 60 minute moving average targets and just above the September low. It was also a 60 minute wedge bottom. It reversed up from the 1st bar. At the moment, it is Always In Long, and has about a 40% chance of being a trend from the open bull trend. However, no one knows if it will be a bull swing in a trading range or a strong bull trend day. Bulls will buy the 1st pullback. It might soon stall and enter a trading range. The context is very good for the bulls, and the price action is acceptable for them. The chance of a bear trend day is 30%.
Pre-Open Market Analysis
S&P 500 Emini: Learn how to day trade at support
Yesterday had a strong bull break (a spike), a pullback to 1984.50), and then a channel. The channel usually evolves into a trading range, and the bottom of the range is usually around the bottom of the channel. The day session opens in 90 minutes and the Emini is down 30 points, below the bottom of the channel. It is testing yesterday’s low.
The bulls want a double bottom with yesterday’s low and then a breakout above yesterday’s high, which is the neck line of the double bottom. A measured move up from there is around 1980, which is the bottom of the 3 month trading range. As long as the Emini does not fall much below the August low, the bulls will see a double bottom on the monthly chart. The bears always want the opposite.
Yesterday’s bull reversal was strong enough to that the odds are that there will be at least a bounce before the Emini falls below yesterday’s low. However, the Emini is in an early bear trend on both the daily and weekly chart, and a strong breakout below the August low would probably lead to a test of the monthly targets that I have mentioned all year in my weekend blogs. Since the daily and weekly charts are in trading ranges, they are also in bull trends. Whenever a market is in a trading range, it is also in the early stages of both a bull and bear trend. The bulls need the support at the bottom of the trading range to hold.
Since the Emini is at the bottom of a trading range on the daily and weekly charts, the probability is that the support will hold and that it will rally over the next couple of weeks to somewhere in the middle of the range. Less likely, it will get its strong bear breakout.
The ranges have been big over the past week, which has been good for both swing traders and scalpers. The odds are that there will be at least one big swing today as well. If there is no clear stop entry setup, traders will enter after there is a breakout with follow-through. If there is a lot of trading range price action, they will take trades in both directions. Day traders have been able to do well this week using limit orders betting that breakouts will fail, at least enough to make a scalp.
Today is Friday so weekly support and resistance are magnets, especially in the final hour. The low of the week is 1971. Last week’s low was 1910, last week’s close was 1911.50, and the open of the week was 1924.50.
Forex: Best trading strategies
Since the December 3 huge bull trend reversal on the daily chart of the EURUSD, I have been saying that there would be a pullback that could last more than a month and be deep, and that the odds are that it would be followed by at least a 2nd leg up. After the reversal up from a 2 legged pullback on the daily chart, the EURUSD has been trying to resume up for that 2nd leg. It is still within the month-long trading range.
It has rallied for the past 5 hours with more than an hour to go before the open of the NYSE, but the overnight rally has only been 60 pips and the EURUSD is getting close to the top of the range. Most tests of the top and bottom of the range lead to reversals, and the odds are that this one will as well.
The bulls need a strong breakout above the range to make traders believe that the bull trend that began on December 3 is resuming. Without that, the bulls will be quick to take profits and the bears will begin to short, betting against a bull breakout.
Whenever a market gets near the top or bottom of its range, emotions increase because the potential for a big, fast move in either direction is higher. The overnight rally has been weak and it therefore looks more like a bull leg in a trading range than the resumption of the bull trend. Unless there is a strong breakout or a strong reversal, day traders will continue to mostly scalp for 10 – 20 pips in both directions. Even though the EURUSD is in a bull trend on the 5 minute chart, the trend is weak and bear scalpers have been able to make money all night by selling new highs.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini tested below the September higher low and then reversed up. The reversal was not strong, but it had a bull bar on the daily chart. The daily chart also has a micro wedge and is oversold. It is more likely that the Emini will rally next week instead of successfully breaking below the September low. It is impossible to know how strong the rally will be, but after a wedge bottom, the odds are that the Emini will have a couple small legs up and test the top of the wedge bear channel at around 1950. If instead it breaks strongly to the downside, traders will sell, looking for a 250 point measured move down.
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.