Trading Update: Thursday October 20, 2022
Emini pre-open market analysis
Emini daily chart
- Yesterday ended, the four-bar bull micro channel and closed as a doji bar.
- The bulls saw yesterday as a High 1 buy setup. However, the bar is a doji bear near resistance, top of the trading range, and the October 5 high.
- The bulls want a breakout above neckline (October 5) of the double bottom and the measured move up to 4,000.
- The bears want the High 1 to have sellers above, leading to a micro double top nested inside the larger double top (October 5). Next, the bears want a downside bear breakout below the neckline of the double top (October 13) and get a measured move down.
- Since a measured move of the double top would project further down than the 2002 Pre-Pandemic high, the market will probably not reach a measured move down.
- Everyone knows the 2020 Pre-Pandemic high is 3,323.25 and a magnet. Some value investors want to buy here, and they might be worried the market will not reach it, so they may start from running and buying aggressively right before the market gets down to that magnet.
- Another magnet is the September 2020 low which is the beginning of the bull channel.
- Overall, the market probably will begin to go sideways to up soon, and test back to the 4,000 big round number area.
Emini 5-minute chart and what to expect today
- Emini is down 8 points in the overnight Globex session.
- The Globex market has been going sideways in a broad trading range since yesterday’s U.S. Session close.
- The bulls attempt for an upside breakout and measured move of the trading range failed. Most breakouts of trading ranges fail, so the odds favor the failed breakout and more sideways.
- Since the daily chart had a four-bar bull micro channel and yesterday went below it, the bulls will try their best today to start a second leg up on the daily chart.
- The bears want to prevent this and create a disappointment bar for the bulls.
- As always, traders should expect sideways on the open and consider not trading for the first 6-12 bars. This will help prevent traders from getting trapped on the wrong side of the market.
- It is common for stop entry swings to form after a double top/bottom or a wedge top/bottom, so traders should pay attention to one of these setups during the opening session.
- Lastly, traders should assume the day will be a trading range until proven otherwise. If today is going to be a strong trend day, up or down, there will be plenty of time to enter the direction of the trend. There are plenty of opportunities during the day, so it is crucial to be patient and wait for a setup with strong math.
- Below is a great Trading Room clip of Al Brooks discussing trading psychology:
Yesterday’s Emini setups
Al created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The market has been forming a triangle since the late September bear breakout.
- The bears are trying to form a bear flag (October 18th) following the 4-bar bear microchannel ending on October 10th.
- The bulls want an upside breakout of the bear flag (purple dashed lines) and a measured move up.
- The odds still favor a second leg up following the October 4th rally. Although October 4th rally was a buy vacuum test of the apex of the trading range (August 15th – September 15th), it was a strong enough buy-the-close bar that traders would expect a second leg up.
- These bulls never had a chance to exit breakeven back at the October 4th close after the disappointment bar (October 5th), increasing the odds that the market will have to return to the October 4th close.
- Overall, the bears, have been in a broad bear channel since the middle of 2021, and the odds favor the bear channel evolving into trading. This means that odds favor a bull rally lasting a couple of months and the market going above a major lower high such as the September or August high.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Al created the SP500 Emini charts.
End of day review
• Today formed a parabolic wedge rally that led to a small pullback bear trend.
• The mark formed a parabolic wedge rally on the open, leading to an endless pullback with a strong downside breakout around 9:00 AM PT.
• The 9:00 Bear breakout was strong enough to become sell the closes and was a major bear surprise. This means traders should expect 2-3 legs down, a possible measured move down based on the bodies of the 3-bar bear breakout.
• The small pullback bear trend formed several open gaps on the way down, warning that the bears were in control.
• When the market forms a small pullback bear trend, it is better to wait for a clear trendline break, test the moving average, and retest the lows before looking to establish long positions.
• Overall, today was a good day for the bears. The daily chart went outside, and the high 1 sell signal bar appears to be failing.
The bears will try and get follow-through tomorrow, and the bulls will try for a second entry buy and a second leg up.
• Tomorrow is Friday, so weekly support and resistance will be important to pay attention to weekly support and resistance.
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.