The Emini gapped above yesterday’s high, and immediately sold off, becoming Always In Short. However, it reversed up from a small double bottom and is rallying for a test last week’s lower high at 2113.50. At the moment, it is Always In Long and will probably have at least one more leg up, but it is at the top of a trading range and the breakout is not particularly big. This makes it likely that it will pull back deeper than the bulls expect, and for more bars. An early trading range is likely, even though the odds are that there will be at least one more leg up. Unless the bulls get above the 2113.50 high, the rally will end up as a bull leg is what will probably be a trading range.
The bears want this breakout to fail, but it is strong enough up so that they will need a 2nd entry short or a strong bear breakout.
My thoughts before the open: Day trading tip is to be ready for a test of last week’s lower high
Even though the Emini has sold off after every 2 – 3 day rally, the selloffs are also brief and the Emini keeps getting closer to its all-time high. I think the ascending triangle on the daily chart is more likely to have a bull breakout, but until there is a breakout, there is no breakout. The bears still have a lower high at 2113.50, and they hope that the current rally fails to go about that price. If they succeed in turning the Emini down again, daytraders will begin to believe that the trading range is a distribution top and the early part of a broad bear channel, instead of a base for a new leg up.
Traders learning how to trade the market have noticed that many of the swing trades up and down have not have many strong consecutive trend bars, and that every move up and down reversed within a few hours. Also, the Emini has spent a lot of time in tight trading ranges. This makes sense and it is just a reflection of the tight trading range on the higher time frame charts (look at the weekly chart’s tight trading range).
The Globex Emini session is currently up around yesterday’s high so today will probably gap up. However, it still needs to get above last week’s lower high and the all-time high. Otherwise, this gap up will be just a buy vacuum test of resistance and another lower high. The open could quickly reverse into a swing down early on. Bulls need consecutive strong bull trend bars. The Emini can form them on the open or after a trading range. Most big gap openings are followed by a trading range within the first hour. The bulls then look for a double bottom, and the bears look for a double top.
The reason traders are not more bullish or bearish is because The Emini has been unable to go in one direction for more than a couple of days. Until it does, the day trading tip is to expect a lot of two sided trading and then be quicker to take profits. However, daytraders will still look for swing trades, even though strong trends lasting all day have been infrequent over the past few months.
Forex trading strategies for today
The British Pound and Australian Dollar have been strong, but are overbought. The GBPUSD is in a tight wedge top on the 60 minute chart, and traders learning how to trade the market will begin to look for a swing down. There is a 75% chance of a bear breakout below the bull channel, and then a trading range or a swing down. The chance of a bull breakout and an even stronger move up is about 25%.
The EURUSD is at the top of a two week trading range and in a 3rd push up on the 60 minute chart. The third push up over the past few days also has 3 pushes. This is a nested wedge top. The odds are that it will correct sideways to down in 2 legs over the next couple of days, although the top it not yet it. Day traders who are trading Forex for a living have to decide between the lower probability short before a clear bear breakout, and the higher probability short after the bear breakout. This 2nd choice always comes with more risk because the stop is further away. Both are reasonable approaches.
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.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The S&P Emini futures contract rallied today above lower highs on the 60 minute chart, and this significantly increases the chances of a breakout to a new all-time high. With the probability now higher and the Emini so close to the target, it might gap up to the new high tomorrow.
Bears hope that the bulls will not be able to achieve their goal. These bears are shorting here with a stop at a new high. Since the stop is close, the probability that the bears will make money is small. It is more likely that there will be a breakout to a new high. However, because the monthly chart is so overbought, the breakout to a new high will probably fail within a few bars on the weekly chart, and the weekly tight trading range will then become the final bull flag. Much less likely, the monthly bull trend will continue for many more months.
Forex price action for tomorrow
The EURUSD is still forming a 3rd push up on the 480 minute chart and it is testing the February high. Th rally for the last month is probably a bull leg in a trading range, and this wedge top will probably lead to a couple of legs down to around the bottom of the wedge around 1.1060.
The USDCAD is forming a wedge bottom on the 480 minute chart and it will probably have 2 legs sideways to up soon.
The GBPUSD is forming a very tight wedge and it, too, should pull back over the next several days, but it is stronger against the dollar than the other markets and the pullback will probably be less.