The S&P Emini futures gapped above the top of the bull trend channel and rallied for several bars, creating a trend from the open bull trend. The first pullback will probably be bought. The Emini is Always In long.
However, it is now at the top of the 3 month trading range and the bears will try for a 60 minute head and shoulders top. The rally is strong enough so that it is more likely that the best the bears can get is an early trading range. Although it is possible that this is a buy vacuum test of resistance and that it quickly fails and leads to a bear trend, it is more likely that it will have to go sideways for an hour or more. The bears need to create selling pressure.
If instead the Emini day trading bears are able to create several consecutive strong bear bars, the market could reverse to always in short without first forming a trading range, but this is a low probability bet.
Because the Emini is just below the all-time high, the Emini will probably go sideways soon as it decides between breaking out and reversing. Unless the bears get a strong reversal or a reversal pattern within a trading range, day traders will be looking for buy scalps and for swing trading from the long side.
My thoughts before the open: Intraday trading techniques at a breakout
As I mentioned over the weekend, the Emini was likely to rally more today. The bears are hoping to turn the market down from a lower high major trend reversal on the 60 minute chart, and the bulls want a measured move up after a breakout of an ascending triangle on the daily chart. The daily candlestick pattern is a higher timeframe and stronger, given the weekly and monthly bull trends. Because the monthly chart is so overbought, the odds are that the market is going to turn down within the next few months, whether or not the bulls get their new high.
Traders learning how to trade the markets can see that the past 2 days created a bull spike and channel pattern. The day trading tip for the first couple of hours is to see what the market does as it tries to break above the bull channel. Most bull breakouts above bull channels fail, and then break below the channel. This is usually followed by the channel becoming a bull leg in a trading range.
If the bulls are successful in creating a breakout, then the market cycle starts over again. The breakout might go for 20 or more bars. Pullbacks will then begin. If they are broad, day trading for beginners will be good. They will look to buy high 2 bull flags and wedge bull flags near the moving average. As the trend weakens, bear scalpers will begin to sell new highs, expecting the market to enter a trading range. Bull swing traders will begin to take profits sooner, and they will switch to scalp trading.
The Emini futures contract is up in the Globex session. This will probably result in a gap up on the open, and the Emini will probably be above yesterday’s bull channel. If so, the gap up is more likely to be an exhaustion gap than a measuring gap. However, traders should not be in denial if there is a strong rally on the open and the gap begins to look like a measuring gap. Even though this is less likely than a reversal when the market is at the top of a channel, traders have to trade what is in front of them.
Traders learning how to trade Forex markets should realize that as strong as the Euro has been over the past couple of weeks on the daily chart, it is probably close to being exhausted. This means that it will probably begin to have a pullback and enter a trading range. This has probably begun with the EURUSD. Online currency traders will be mostly looking for Forex scalps in both directions.
Traders trading Forex markets for a living should look at the Canadian dollar today. It is strong against the US dollar and the yen. Even though it has had three pushes and is forming a wedge, the best Forex trading strategy is still to look to buy pullbacks for Forex scalping or swing trading.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Today’s tight trading range is just below the all-time high. The bulls are hoping for a breakout with follow-through, and the bears are hoping for a reversal. Tomorrow will be in breakout mode. Since all of the higher time frames are in bull trends, the odds favor a new all-time high, probably this week. However, it will probably soon fail because of the extreme buy climax on the monthly chart.
Those trading Forex markets for a living also did not make much money today, and their only choice was Forex scalping. The EURUSD is overbought, but the first reversal down on the daily chart will probably be bought. However, the current rally is probably a bull leg in a developing trading range.
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.