The Emini gapped below yesterday’s low and the bottom of the bear channel, but began with reversals, small bodies, and prominent tails. Bulls and bears were able to make profitable scalps. This is trading range price action and it increases the chances of more throughout the day.
The bears then had a bear breakout down to a measured move target and the bottom of the 60 minute bear channel. However, tails again were fairly prominent. Although the Emini is Always In Short, it will probably have a rally at some point today. The bulls want an early low of the day. They need either a strong bottom or a strong reversal up. The bears hope that the bear leg lasts 4 or more hours, as it did several days lately. The odds are against that because the 60 minute chart is so oversold.
Although a swing up is likely, the trading range price action makes the swing up more likely to be a bull leg in a trading range instead of the start of a strong bull trend day. The open of the day might end up in the middle of the day’s range to create a doji day. If the Emini rallies to a measured move up from the low to the open, traders will look to sell near that target late in the day. They will expect a test back down near the open.
Pre-Open Market Analysis
S&P 500 Emini: Price action day traders looking for a bottom
The Emini is oversold and has formed a wedge bottom on the 60 minute chart. It reversed up for 1 leg yesterday, but is down 33 points with an hour to go before the NYSE opens. It will probably open or trade below yesterday’s low. This would be a failed wedge bottom. When there is a wedge bottom, the stop is clear. It is below the low of the wedge. When there is a reasonable bottom and a clear stop and then the market trades below in general, there is a 50% chance of a new swing down and a 50% chance of a failed bear breakout and another reversal attempt back up.
The Globex is trading below the August 24 micro double bottom low, but not yet above the August bear trend low. This is important, because if it reverses here, it increases the chances of a trading range for 10 or more bars. When there are 2 support levels and the lower one is major, and the market falls below the higher but not the lower, and then tries to reverse, it is exhibiting trading range price action. This increases the chances of a trading range over the next 10 bars. If instead it falls below both, the bear breakout can still fail, but it is more bearish and it increases the chances of lower prices.
It does not matter if the daily chart is in a bear trend as far as a possible rally goes. All bear trends have rallies. The daily and 60 minute charts are oversold, and the 60 minute chart is forming climax bottoms. The odds are that there will be a rally within the next few days, even if the sell climaxes gets much more extreme 1st over the next couple of days. No one knows when the bounce will come or the level from which it will come. However, there is a 60% chance chance of at least 5 – 10 bars of sideways to up trading beginning any day. Bulls will look for a buy setup and any time frame. The bears will continue to sell every small or strong rally, correctly betting that the odds are that the rallies will fail. At some point, the bears will sense that a correction up is underway on the daily chart. When they do, they will wait to sell near clear resistance, like the moving average. When the bears are waiting to sell, the lack of sellers can lead to a quick move up (a buy vacuum) to resistance.
Forex: Best trading strategies
Nothing has changed in the EURUSD. It is in a tight trading range on the daily chart at the apex of a 7 week trading range. This is breakout mode, and until there is a breakout, day traders will scalp. The December 3 reversal was strong enough so that the odds of a 2nd leg up are still greater than the odds of a break below the December low. Traders on the 60 minute chart are scalping for 50 pips. Traders using the 5 minute chart have been mostly scalping for 10 – 20 pips. However, there was a bigger swing down over the past 5 hours. It dropped back to the middle of the range of the past several days and it is more likely to go sideways once again. The swing down overnight lacked consecutive big bear trend bars. Many bars overlapped and had small bodies and prominent tails. This is trading range price action, and it makes the selloff more likely just another leg in the trading range rather than the start of a move with much more to go.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Trading range price action is usually followed by a trading range. About 20% of the time, it continues relentlessly in a small pullback trend. Today was an example. Once a pullback fails to go above a breakout point, like at 7:10 am PDT and again at 8:40, the odds of a small pullback bear trend go up, and bears become less willing to take profits at new lows and bulls become less willing to buy new lows for scalps.
The Emini tested below the August bear trend low and reversed up, from just above 1800. The daily chart is in a parabolic sell climax. January was down about 10% this morning, which is very unusual and unlikely to be true at the end of the month. The 60 minute chart reversed up from a bear breakout below a bear channel. All of these factors make it likely that the Emini will trade sideways to up for the next week or two. The pullback into the close is a reminder that the rally might be a bull leg within a large bear flag.
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.