Trading Update: Wednesday May 18, 2022
Emini pre-open market analysis
Emini daily chart
- Emini at resistance with yesterday’s bulls getting within 10 points of the February 24 low. There will likely be some profit-taking in this area from scale in bulls who bought betting against the bear breakout below February 24.
- Since the market is not clearly always in long, I think today will be disappointing for the bulls, which means today may be a bear close.
- Bulls have had a strong reversal up from the May 12 low, which was a 19% correction.
- The bulls have a 4-bar bull micro channel which increases the odds of a second leg up.
- The rally from May 12 has reversed the breakout below the February 24 low, which increases the odds of more trading range price action.
- While it is still possible the market goes lower, the market will probably have to test higher first. Even if the market has a rally up to 4,300 or even 4,400, the bears will try to get a lower high below the March 29 high and another selloff below the May low.
- The bears hope that the rally over the past four trading days is just a breakout test of the breakout below February 24. These bears want to prevent the market from closing above February 24 and get a bear breakout below the May low.
- If one looks at the daily chart and is confused, they are likely thinking about it correctly. Remember, confusion is the hallmark of a trading range.
- The rally up to May 17 may be similar to February 24. The odds are the bulls will get a couple of legs up. What traders do not know is will the market have a deep pullback first. This was similar to what happened back in February.
- Traders can buy here, but it is still possible the market has to fall below the May 12 low. However, if a trader does not buy here, they risk having to chase the market up if there is an upside breakout.
Emini 5-minute chart and what to expect today
- Emini is down 50+ points in the overnight Globex session.
- The Globex session came within 5 points of the 4,100 big round number.
- The market is going to gap down today.
- Bears have a reasonable chance at getting a close below today’s open (trading range likely on the daily chart, so bulls should be disappointed soon. Read above for more info).
- Since a gap down will occur, traders should expect a sideways test to the moving average early in the day. This means traders should expect trading range price action on the open.
- Most traders should consider being patient for 6-12 bars. The reason for this is that the open usually have fast moves that can reverse quickly and cause a trader to lose a lot of points quickly, and they will spend the rest of the day fighting to get back to break even.
- Most traders should wait patiently for a credible stop entry such as a double bottom/top, wedge bottom/top, or a credible breakout with strong follow-through.
Yesterday’s Emini setups
Al created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- Bulls got a bull bar closing on its high yesterday. The bulls have strong buying pressure, and the context is good. However, the bulls need follow-through here.
- Right now, the bulls have a final flag setup with the May 12 failed bear breakout, and now the market is back into the 10-day tight trading range.
- The problem the bulls have is that yesterday’s breakout is at the 20-point exponential moving average, which is resistance. So this may be a buy vacuum test of the moving average.
- Yesterday is a strong enough breakout bar to increase the odds of a surprise and second leg up.
- Today will be an important day. Today, the bulls have an excellent opportunity to demonstrate strength and have today be another big bull breakout bar closing above the moving average. This would make the market clearly always in long and increase the odds that this will be the rally that reaches the bottom of the March – April trading range.
- The channel down from March 31 is tight, increasing the odds that the rally from the May 12 low is minor. Today may be a bear bar, which would remind traders that the market may go more sideways than straight up.
- So far, today’s low is around a 50% pullback of yesterday’s bull breakout bar. Bulls will try and buy a 50% pullback of yesterday’s breakout because it gives them better risk-reward and decent probability. Those bulls could place a stop below yesterday, and a 1:1 risk/reward would be the high of yesterday.
- Overall, today will be important to see if the bulls can get follow-through after yesterday’s bull breakout.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
- Al will post chart after the close.
Al created the SP500 Emini charts.
End of day summary
- Today was a very strong small pullback bear trend day.
- The bears gapped down and were a trend from the first bar.
- The bulls had a reasonable buy around 7:30 PT (green box). The bulls tried to form a bottom and an opening reversal up to the moving average but failed.
- The bears got a strong bear breakout below the first 18 bars around 8:40 PT. Next, the market formed a tight bear channel for the rest of the day.
- The bulls tried several times to reverse the market up but failed, and the market continued lower.
- The bulls were also never able to get a bar above the moving average, indicating a very strong bear trend day.
- Lastly, on days like today, the market is constantly forming wedge bottoms, and most of them lead to sideways price action. It is best to assume all reversals will be minor until there is a strong trendline break.
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
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.
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.
Hi Brad, is there a way to identify a high probability of a trend day like we saw here (maybe some indication in the premarket or the day before)?
Big gap on the open, pullbacks going sideways, body gaps. This helped me yesterday.
Hey Brad, had a question about today in the first hour…. I shorted below bar 8 after what I thought was a failed attempt to reverse a parabolic wedge. I ended up flipping to long above the next bar (bar 9) as it looked like a DB 2nd entry long following a parabolic wedge far below the ema….after this entry failed as well, was it the right move to immediately flip short again below bar 10? Also, the bear move off the open was so strong, maybe it would be better to wait for a follow thru bull trend bar above bar 9 before getting long… what do you think?
I would not eager to short below bar 8 because it may be the third push down for the wedge bottom. Bar 9 was a reasonable buy. However, bar 9 had bad follow-through which caused some traders to exit and others gave up below bar 9.
Overall, I would be careful about reversing back and forth. It is very difficult to do and one can take a lot of losses quickly making it hard to make up before the end of the day.