Pre-Open market analysis
Yesterday was a small bear doji day near the top of a 6 day tight trading range. The bulls are trying to break above last week’s high and then test 3500. But the bears want a double top with Thursday’s high (last week’s high) and then a selloff to 3000–3200. The should fall below 3200, but it might 1st test 3500.
There is an FOMC today at 11 am PST. Ahead of the meeting, today will be a normal day. Traders will treat the report as a restart to the day.
Day traders should exit positions ahead of the announcement. There is typically both a sharp move up and down within the 1st few minutes of the report. Day traders should wait at least 10 minutes before resuming their trading to avoid that early whipsaw.
Traders should always be open to anything after an FOMC announcement. There can be a strong trend up or down, a reversal, or a trading range.
Ignore what the Fed does. Simply trade what is on the chart in front of you. That tells you how the institutions view the report.
Last week’s high is a magnet
Thursday’s high (last week’s high) is resistance and the bears want a reversal down from a double top on the daily chart. But it is not the start of the trading range price action that formed during the 3 day collapse on the 60 minute chart. That began on September 3, just below 3500, and that is why I have been saying that this rally might continue up to 3450 – 3500.
Many traders want to see it tested before concluding that there will be a 2nd leg down to 3000–3200 or a resumption of the 5 month bull trend and then a new high. The 3 day rally is the start of the test.
Also, last week is a High 1 buy signal bar on the weekly chart in a bull trend. It is a bear bar and it followed an outside down bar at the top of a 3 year expanding triangle. Consequently, a break above last week’s high will probably not get too far. However, traders expect a break above last week’s high. They will probably get it today.
Overnight Emini Globex trading
The Emini is up 18 points on the Globex session. It will probably gap above yesterday’s high and open around last week’s high.
Traders expect at least a small break above that high today. Since last week is a weak buy signal bar on the weekly chart, a break above last week’s high will probably not lead to aggressive buying. Also, the Emini is at the top of a 6 day trading range and reversals are more common than breakouts. Consequently, there is a smaller chance of a huge bull breakout today than in other Breakout Mode situations.
Finally, many traders will wait for today’s FOMC announcement before trading aggressively up or down. Day traders will treat today like any other day ahead of the announcement. With a lot of recent trading range price action, they expect at least one leg up and one leg down this morning.
They should get flat before the announcement and then wait about 10 minutes after the 11 am PST announcement before looking to trade again.
Finally, they should be open to anything and assume that everything is equally likely. That means a trend up or down, a reversal, or a trading range.
Here are several reasonable stop entry setups from yesterday. I show each buy entry with a green rectangle and each sell entry with a red rectangle. I rarely also show limit order entries and entries on the close of bars. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. Buyers of both the Brooks Trading Course and Encyclopedia of Chart Patterns have access to a much more detailed explanation of the swing trades for each day (see Online Course/BTC Daily Setups).
My goal with these charts is to present an Always In perspective. If a trader was trying to be Always In or nearly Always In a position all day, and he was not currently in the market, these entries would be logical times for him to enter.
If the risk is too big for your account, you should wait for trades with less risk or trade an alternative market like the Micro Emini.