Bears Want Second Leg Down after 5-bar Bear Micro Channel

Trading Update: Thursday December 29, 2022

Emini pre-open market analysis

Emini daily chart

• The market formed an outside down, closing below the 50% pullback of the two-month rally that ended on December 13^th. The bears want second leg down after the five-bar bear micro channel.
• Bears are hopeful that the second leg will have symmetry to the first leg down (December 20^th). They want the sideways price action over the past couple of trading days to be a bear flag that leads to a trend resumption down.
• Traders will pay close attention to the follow-through today. If the bears can get another strong bear breakout bar closing near its low, it will increase the odds of lower prices and a test of the November 3^rd and the October 21^st low.
• The bulls see the daily chart in a trading range and expect the bears to become disappointed with the follow-through.
• While yesterday’s bear trend bar is a surprise that will probably have a small second leg down, it is an outside bar. Outside bars are typically trading range bars that lead to sideways price action.
• Overall, traders will pay close attention to today’s bar. The bears will try their best to get follow-through after yesterday’s outside down bar. The bulls will try for the opposite and to prevent the bears from getting their follow-through.  With only two trading days left in the year, traders should expect sideways price action.

Emini 5-minute chart and what to expect today

• Emini is up 24 points in the overnight Globex session.
• The Globex market has been in a tight bull channel since early this morning.
• The bulls recently got a strong upside breakout around 5:30 AM PT. The breakout is strong enough to get a second leg up. However, it is testing significant resistance from yesterday. This increases the odds of more sideways trading.
• Traders should expect a trading range open and 6-12 bars of sideways trading. This means traders should expect a lot of limit order trading and be cautious on the open.
• Most opens have a lot of sideways trading. Therefore, there is no rush to get into the market.
• As I often say, a trader can consider waiting for a credible stop entry in the form of a double top/bottom or a wedge top/bottom.
• While the market will probably have a lot of trading range trading today, traders should pay close attention to yesterday’s bar 1 low. There should have been buyers at the low of bar 1 yesterday. The bulls that bought the bar 1 low got trapped. Those bulls bought expecting the bar 1 low to be support and the market broke far below it. This means that the bar 1 low from yesterday will likely be a magnet and act as resistance if the market reaches it today.

Emini intraday market update

• The market is currently in a bull trend from the open.  
• Today is likely to be either a bull trend or a trading range day.
• 60% chance this trend from the open will form a trading range, and the bull trend from the open will not last all day.
• While the market is Always In Long, the market is far away from the moving average, which will limit the upside.
• As of 7:30 AM PT, the market will probably go sideways to down and get closer to the moving average.
• The market is deciding if it has to reach yesterday’s high or remain an inside day today.
• The bears need to show more signs of selling pressure to convince traders that the market is going lower.
• Since the odds favor a test of the moving average soon, it can get there by racing down to it or going sideways. Traders should expect a test of the moving average over the next 12 – 24 bars.

Yesterday’s Emini setups

Brad created the SP500 Emini charts.

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. 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. These therefore are swing entries.

It is important to understand that most swing setups do not lead to swing trades. As soon as traders are disappointed, many exit. Those who exit prefer to get out with a small profit (scalp), but often have to exit with a small loss.

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.

EURUSD Forex market trading strategies

EURUSD Forex daily chart

• The EURUSD continues forming a tight trading range just above the moving average.
• The market is in breakout mode, and it is essential to realize that the probability is close to 50% for both the bulls and bears.
• The 20-period moving average (blue line) has not been touched in 34 bars which is extreme. This increases the odds that the market will have to reach the moving average soon before the market can go much higher.
• The bulls want today to be a bull inside bar closing on its high. They will see this as a triangle and try for an upside breakout.
• As I mentioned above, the market being 34 bars away from the moving average will limit the upside potential if the bulls break above the triangle (tight trading range, green box).  
• There will likely be sellers above the December 15^th high if the market reaches it before touching the moving average.
• The bulls have a small pullback bull trend, and so far, even though the bears are preventing the market from going higher, the bulls are continuing to form negative gaps, which increase the odds of higher prices.
• On the weekly chart, the December rally is the first trendline break of the bear trend that began in 2021. Traders will likely want to see a retest of the October lows and a credible higher low major trend reversal.
• A credible retest does not mean the market has to reach the October low. It just means that the market needs to see how eager traders are to buy a test down.
• While the December rally is a strong enough reversal to lead to a second leg up, the pullback from the December rally can easily be 30-40% and test the November 21^st low.
• Overall, the market will likely pull back below the moving average soon. While the market may continue higher, the pullback will probably be deeper than the bulls want.

Summary of today’s S&P Emini futures price action and what to expect tomorrow

Brad created the SP500 Emini charts.

End of day review

• The Market formed a bull trend from the open that transitioned into a trading range.
• The rally on the way was climactic and unsustainable, which increased the odds of a trading range that lasted for several hours.
• IT is common for trends from the open days to become too climactic and lead to a trading range. This is unlike small pullback trends that can last all day due to the lack of extreme, climactic behavior.
• The market was Always In long on the close of bar two, and it was reasonable to get long for any reason betting on a second leg up.
• Most of the red boxes marked on the chart are minor reversals that are more likely to lead to sideways trading, than a major reversal down.
• In general, when there is this much buying pressure on a day like today, it is dangerous to sell when the channel is tight.
• The bulls managed to reverse yesterday’s outside down day on the daily chart.
• The bulls want this to be another failed breakout below the 50% Pullback of the 2-Month Rally that ended on December 13^th. Next, the bulls want a test of the December 6^th low.
• The bears hope today is just another pullback in the bear selloff that ended on December 20^th.

See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.

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Trading Room

Traders can see the end of the day bar-by-bar price action report by signing up for free at BrooksPriceAction.com. Al talks about the detailed S&P Emini futures price action real-time throughout the day in the BrooksPriceAction.com on trading room days. We offer a 2 day free trial.

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Charts use Pacific Time

When times are mentioned, it is USA Pacific Time. The Emini day session charts begin at 6:30 am PT and end at 1:15 pm PT which is 15 minutes after the NYSE closes. You can read background information on the market reports on the Market Update page.

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