The Emini futures contract gapped up on the open, but then sold off strongly below yesterday’s low. The bulls want an abrupt reversal, like April 28. If they get their reversal, it will probably be more like April 14…they will probably need to go sideways for 5 – 10 bars and create some buying pressure first.
The odds are still that the Emini will form a 2 hour sideways to up move starting within the first 1 – 2 hours. There is only a 20% chance of the Emini trading down all day without that pullback. However, as you know, I believe that the Emini will have one or more of those 20% probability days at any point within the next few months, and it will be the start of a 10 – 20% correction.
The Emini is always in short, but trying to reverse up. It should be able to go sideways to up for a couple of hours. However, the initial selling has been so strong that unless the bulls are able to generate enough buying pressure to erase the selling pressure, the best the bulls will get will be a trading range. Then, later in the day, the Emini will choose between trend reversal up and trend resumption down. The initial selling of the 2nd and 3rd bars of the day was strong enough so that it might lead to a measured move down at some point today.
My thoughts before the open: Intraday trading strategy after a sell climax
Yesterday was a bear trend in a clear channel in the S&P500 Emini futures contract. This is a sell climax on a higher time frame. When one day ends with a sell climax like that, the odds are 80% that the next day will have at least a 2 hour correction, which can be a trading range or a rally. Yesterday also had a moving average gap bar in the final hour. This means that the bulls were strong enough to put a bar completely above the moving average. A gap bar usually leads to the final bear leg before a major trend reversal attempts to form. Although there might be some follow-through selling for an hour or two, the day trading tip for beginners and for pros is to look for a bull swing trade setup within the first hour or two.
Friday is the unemployment report and another potential market mover. As you know, traders learning how to trade the markets need to be prepared for a fast 10% move down this year, and I think it is more likely to begin within the next few months than at the end of the year. When if comes, it will probably look something like yesterday. The Emini will constantly form convincing bottoms, but then break strongly to the downside again. The breakouts will be very big. On the next day when the Emini has an 80% chance of a 2 hour bounce, it will instead choose the 20% alternative and have another bear trend day. It might have 3 or more in a row. They might be very big. When this happens, the high probability trade will be to look for swing sell setups and try to swing part of the position. The bulls are often also able to make money. Their price action trading strategy is to wait until the Emini begins to form stairs, which is a type of broad channel. This means that after the Emini breaks out to a new low, the Emini rallies back above the breakout point. They will buy 1 – 4 points below the old low and take profits on the rally back to the low.
Forex trading strategies
The EURUSD on the daily chart is making a new high in the rally after a buy climax and a 2 day breakout below a bull microchannel. This usually is the start of a pullback or trading range. Traders learning how to trade Forex for a living need to be ready for the reversal down soon, and then a trading range lasting 5 – 10 days. Although it is possible for a breakout above last week’s high to become a measuring gap, it will more likely become an exhaustion gap.
The AUDUSD is following the strength in crude oil, and it also is testing last week’s high. Although the rally is strong, it is probably a bull leg in a trading range on the daily chart, just like the rally in crude oil.
With Friday’s report being important to financial markets, the Forex markets might have smaller moves going into the report, which means that online Forex trading will be mostly Forex scalping today and tomorrow.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The S&P Emini had extreme follow-through selling and ultimately daytraders saw it fall for a leg 1 = leg 2 measured move. It then reversed up from below last week’s low. After 2 days of extreme selling, the odds are that there will be at least one more leg up after any pullback tomorrow. The day trading strategy will be to look to buy a pullback.
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.