No presidential debate stock market reaction
While today gapped below yesterday’s low, the bulls closed the gap on the 1st bar. Yet, the bar had a tail on top. This bar disappointed both the bulls and the bears. It therefore increased the chances that today will be like most days over the past several months. Traders expect a lot of trading range trading.
The 1st 3 bars were dojis, and both limit order bulls and bears made money. Therefore there is a lot of trading range price action.
While any day can become a strong trend, this open tells traders that there is no sense that the price is drastically wrong. Hence traders wil look to buy lower and sell higher, expecting that the price is about right.
Because of the trading range price action and the market being low, traders prefer to buy. Yet, they will expect any rally to fail around the moving average. This increases the chances for a trading range for the 1st hour or 2. If there is a strong breakout up or down, traders will be willing to swing trade. Yet, unless the trend is strong, the odds favor that any swing up or down will later lead to an opposite swing and a trading range day.
Pre-Open Market Analysis
While yesterday had big swings up and down, it was a trading range day. Furthermore, it was the 7th day in a tight trading range. That increases the odds of more trading range price action today.
The daily chart yesterday triggered a Low 2 sell signal when it traded below Wednesday’s low. Because yesterday was not a big bear trend bar closing on its low, it was a weak entry bar. Hence, the 7 day tight trading range is more likely to continue than break out. The Emini might be waiting for more certainty about the congressional election.
No one knows what the market will do once the results are know. Yet, the probabilities are the same as they’ve been for months. There is a 70% chance of a drop below the July 2015 high before the Emini goes much above the all-time high. In addition, there is a 60% chance that it will happen before a new all-time high.
Weekly support and resistance
Since today is Friday, weekly support and resistance can be important. This week is an inside week after an outside week. Hence, it is an ioi Breakout Mode setup for next week. There is no major support or resistance nearby. The high and low of the week, the open of the week, and the low of 2 weeks ago are minor magnets.
Overnight Emini Globex trading
While the Emini is down 6 points in the Globex session, the overnight selloff was in a broad bear channel. Hence, the bear trend is in the process of evolving into a trading range. The bulls will look for bottom patterns within the range. Since the Emini is in an 8 day tight trading range, it is in Breakout Mode. As a result, most breakout attempts will fail. Yet, one will ultimately succeed. Until there is a strong breakout, traders will continue to look for reversals. They therefore will continue to buy low, sell high, and scalp.
Forex: Best trading strategies
The EURUSD daily chart tried to stabilize yesterday with a micro double bottom at the July 25 low. Yet, the bears created a reasonably strong breakout below that major higher low. There are many other higher lows over the past year since the reversal up in December. Each is therefore support and a magnet.
Whenever the market breaks below key support, in general, there is a 50% chance that the breakout will reverse up. In addition, there is a 50% chance that it will lead to a measured move down. Yesterday’s bear breakout was strong. That therefore typically increases the odds somewhat in favor of a measured move down.
Exhaustion Gap more likely than Measuring Gap
Because yesterday formed the biggest 240 minute bar in about 100 bars, the odds are that there will be a small 2nd leg down. Yet, when the biggest bar comes late in a trend, it is more likely an exhaustion gap than a measuring gap. Therefore, the EURUSD is more likely to go sideways to up for several days next week than continue down.
Markets resist change
The EURUSD has been in a trading range for 2 years. Since markets have inertia and they resist change, any follow-through selling will probably be small. While everyone know that the EURUSD will eventually break out of its 2 year range, no one knows the direction or the timing. Yet, everyone knows that 80% of breakout attempts fail. Therefore, as strong as the selling over the past 2 weeks has been, it is more likely going to end within the next couple of weeks than continue to break below the 2 year range.
Weekly EURUSD Forex chart
On the weekly chart, this week has been the follow-through bar after last week’s strong bear breakout. At a minimum, the bears want a bear body. Traders will see that as confirmation of last week’s breakout. Therefore, the 1.0967 open of the week is an important price today. If today closes above, it increases the odds that the bear breakout will fail. If it closes below, it increase the odds of lower prices.
Overnight EURUSD Forex trading
While the 60 minute chart is around a measured move down from yesterday’s big reversal bar, and the daily chart is near a measured move down from its head and shoulders top, the weekly chart is the most important. This week will probably have a bear body. That would therefore be good follow-through selling. Hence, it increases the chance of further selling over then next couple of weeks. Yet, because the 60 minute and daily charts are at support, there might be a small bounce next week before at least a small 2nd leg down.
While the selloff continued overnight, there was a big enough bounce so that a trading range will be likely over the next couple of hours and possibly all day.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini gapped below yesterday’s low and rallied all day. Yet the rally had lots of 2 sided trading. The Emini is still in its 8 day tight trading range and today did not change anything.
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.