The Emini opened with a gap down and then a big reversal up. There were several days early in the month where there were big rallies and big bars on the open. Most quickly went sideways and some reversed. The Emini is Always In Long, but there have been several big reversals now in the past 2 days, and that increases the chances of a trading range for the first couple of hours. Also, this rally is back to the middle of the 2 day range and it is at all 3 moving averages, which are flat. Even though there might be a little more to the rally, the probability is that the Emini will soon go sideways for at least an hour.
My thoughts before the open: Day trading tip is to trade the big move off the FOMC report
The FOMC report comes out at 11 a.m. today and traders learning how to trade the markets should not be too quick to take a trade after the report. There is a failed breakout and then a reversal within the first 10 minutes about half of the time, and traders should only rarely enter during those first 10 minutes The price action trading strategy is to look for a swing trade in either direction after the first 10 minutes.
The Emini futures contract is in a critical place in both price and time. It had been unable to break above the current level for many months. Last week’s breakout was weak and the follow-through has been non-existent. This increases the chances of a reversal and a downside breakout. In terms of time, February through April tends to be strong, and we are at then end of that window. Also, the monthly chart has not touched its moving average in 33 months, which is exceptional. All of this increases the chances of a big move down at some point over the next few months, but there might be one more strong rally first.
Yesterday had a strong bull trend reversal, but the Emini is down in the Globex. This is disappointing for the bulls, just as the lack of follow-through selling was disappointing for the bears. Disappointment is a hallmark of a trading range, and this increases the chances of trading range price action into the report today. Yesterday’s range was big enough so that there probably will be at least one swing trade up or down before the report, but big down, big up, and now big down again is trading range price action and the odds are that today will have a lot of it prior to the report.
Trader learning how to trade Forex markets can see that there are no clear trends on the 5 minute charts. The best Forex strategy is to scalp, but be very careful. The EURUSD has had a rally for a couple of weeks, but it is starting to stair step up and it just had a buy climax over the past hour. This means that it will probably trade sideways for a hour or two, and possibly until the FOMC report.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The FOMC report was unable to create a breakout. Tomorrow is the last day of the month, so monthly support and resistance is important. The bulls want a gap above the highs of the past 2 months, which would create an all-time high close on the monthly chart. February through April tend to be bullish and tomorrow is the end of that window. The Emini can still rally from here, but the monthly chart is extremely overbought, and that limits the upside potential.
The Forex markets had good swings early in the day, but then entered trading ranges going into the FOMC report. After the report, the dollar had a small rally.
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.