Today is a Friday and the Emini will pay attention to weekly support and resistance in the final hour. The most important prices are the all-time high of 2 weeks ago, and the open of the week, which is also the February high.
Although the Emini opened at a new all-time high, it immediately pulled back below yesterday’s high and entered a small trading range. Swing traders need a strong breakout with follow-through in either direction. Without that, traders will be more likely to buy low, sell high, and scalp as they wait for the clarity that comes from a strong breakout.
The bears got a strong bear breakout at 7:00 a.m., but had bad follow-through. Although the bear breakout was enough to make the Emini Always In Short, the follow-through was bad enough to make this more likely a bear leg in a trading range than the start of a big bear trend. The bears need to do more to make this a bear trend day.
The bulls are hoping for an opening reversal up from the 15 minute moving average. However, there has been enough selling to make a trading range more likely than a bull trend. When the probabilities are not high for either a bull or bear trend, the Emini usually is in a trading range, even though it might take an additional hour for that to become clear. The bulls do not mind this early selling as long as the Emini does not fall too far. They would then try to have the week close at a new all-time high. The bears know this and are trying to push the Emini down far enough to make the bulls give up.
At the moment, the Emini is Always In Short, but more likely in a trading range than a bear trend. The bears are trying to keep the Emini from breaking back above the moving average because if it does, the Emini will more likely be in a trading range or possibly even a bull trend. If the bears continue to prevent the Emini from closing strongly above the moving average, the Emini could end up in a bear trend, with the moving average being resistance all day, and every rally to the moving average would then become a bear flag for another leg down.
What is likely at this point is that the day will be mostly a trading range day. If the bulls can prevent a bear trend, they will try to create a rally late in the day so that the Emini closes the week at a new all-time high.
My thoughts before the open: learn how to trade a new high
The Emini futures contract is barely at a new all-time high in the Globex session, but it may not be once the day session opens. In either case, the daytrading price action will center around the previous all-time high from 2 weeks ago. Whenever there is a breakout, traders learning how to trade the market have to be aware that it can fail or succeed. If there is a strong breakout or strong reversal, the high probability trading strategy would be to look for a trend and at least a 2nd leg.
The bulls are hoping that the breakout is big and that today is a bull trend day. They want a big bull trend day on the daily chart to increase the chance of a measured move up, based on the height of the weekly tight trading range. The bears don’t mind a big breakout as long as it reverses down strongly within a few days. If the bulls get their big breakout, bears will expect a 2nd leg up. The bears who are selling this breakout as it is forming would then conclude that they are in a losing trade. They will then look for the first pullback or pause to buy back their shorts with a smaller loss. The bulls who waited to see how strong the breakout was would also buy that first pullback. With both bulls and bears buying, the Emini then would have a high probability of a 2nd leg up and a measured move up.
Is a strong bull breakout likely to happen? The best price action trading strategy is always to look to the left. The past several months in the Emini have had very poor follow-through up or down, and no strong breakouts. This is typical of tight trading ranges, and breakouts from tight trading ranges, especially late in a trend, usually are not particularly strong and usually do not go very far. The tight trading range usually becomes the final bull flag. However, since the tight trading range is on the weekly chart, even if the rally does not reach a measured move before reversing, it could still go up for close to a measured move and last 5 or more bars. This could be a month long rally of over 100 points.
If the bears win and today is the start of a 10% correction, the selloff will probably not be a strong bear trend. The Emini would be back in its tight trading range where all of the moves up and down have not had good follow-through. The bears have a better chance of a strong reversal down if the Emini first breaks strongly to the upside on the daily chart and then reverses sharply.
However, this usually does not happen. More likely, any top or breakout will be unclear, just as all of the trading has been for months.
So, will today breakout to a new high? It probably will, but the odds of a huge bull trend day are small. It is more likely to be disappointing because the Emini is still at the top of a tight trading range on the daily chart, which is starting to bend up into a bull channel. It is more likely that the Emini continues up in a channel than with a breakout. However, because the tight trading range has gone on for a long time, there is a possibility of a strong breakout composed of many big bull trend day, and traders need to be ready for strong swing trades.
Forex trading strategies for today: Strong dollar, week Swiss Franc
As I have been mentioning, the EURUSD was overbought and at the top of a week long tight trading range, and at a wedge top on the 60 minute chart. Traders who are trading Forex for a living see that the USDCHF is having an even stronger reversal in favor of the dollar. Although the USDJPY is strong, traders learning how to trade Forex should notice that the rally is near the top of the trading range. Forex trading for beginners today should focus on Forex swing trades and scalps in favor of a strong US dollar, especially in the GBPUSD, USDJPY, and USDCHF. The swing in the overnight session looks overdone, and there will probably be a pullback that will allow traders to enter with smaller risk.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini was in a small trading range today just below the all-time high. It closed near its high, and if it gaps up on Monday, it would be a gap on the weekly chart and it could lead to a strong rally for several days.
Forex price action for tomorrow
The dollar reversed strongly down on the 7 a.m. report today, but there are still wedge reversals setting up on the 240 minute chart against several currencies. The EURUSD has a wedge top at the top of a 2 month trading range. Today’s rally was strong enough so that there might be another day or two up before 10 bars and 2 legs down on the 240 minute chart. The USDCAD has 3 pushes down, but it is more in a trading range than a wedge bottom.
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.