Trading Update: Monday July 18, 2022
Emini pre-open market analysis
Emini daily chart
- Bulls had a strong entry bar following last Thursday’s (July 14) double bottom high low major trend reversal signal bar.
- The strong follow-through last Friday increases the odds of higher prices.
- The bulls hope this is the rally that will lead to a breakout above the neckline (July 8 or June 28) of the double bottom (June 30 or July 14), that leads to a measured move up, which would test the 4,000 big round number, and the June major lower high.
- The odds are the market will reach the June major lower high and convert the market into a trading range. Note that the market is already in a trading range, but as long as bears keep the market below the June major lower high, bears can argue that the market is still in a bear trend on the daily chart.
- Bears will try hard to disappoint the bulls as they try and break above the neckline (June 30 or July 8). Although the bulls look strong over the past two days, traders must remember that the market has been in a tight trading range since late June. If the bull’s probability were high, the market would gap far above since traders would be eager to get long.
- If the bulls get another strong bull trend bar closing on its high today, the probability will increase for the bulls. The point I am making is that there is no breakout until there is a clear breakout.
- The bears want the market to fail around the same price level as it did on June 28th and July 8th and form a double top that breaks below the neckline (June 30 or July 14) and leads to a measured move down that falls below the June 17 low.
- There is one thing interesting Al has pointed out several times in the Room about the daily chart. The market might be forming a consecutive wedge bottom pattern with the first wedge being December 2021, the second push January 24, and the third push February 24. The second wedge bottom is May 20 low as the first, June 16 as the second, and a new breakout below the June low as the third push.
- So, if traders expect a second wedge bottom and a third push below the June 16 lows, why not just place a limit order at the June 16 low? The reason is that if it is so obvious, many traders will front run the buy and buy before the market reaches the June low. This means that the market may not get to the June low, which is one reason the market may have formed a higher low on July 14.
- Overall, traders will be eager to see if today is another strong follow-through bar for the bulls, or if the bulls will be disappointed and get a bear bar leading to more trading range price action.
Emini 5-minute chart and what to expect today
- Emini is up 28 points in the overnight Globex session.
- The market has been in a bull channel for most of the Globex session.
- The bulls hope today will be a trend from the open bull trend day (see daily discussion above).
- Today will likely be a trading range open, as most opens are. This means the odds favor a limit order market on the open.
- If the market does form a trend from the open, traders will not be worried about missing it, because there will be plenty of opportunities to get in the direction of the trend.
- The most crucial thing to remember on the open is that most breakouts fail, and it is easy to take a big loss on the open betting on a breakout.
- Most traders should consider being patient and waiting for 6-12 bars before placing a trade. This is because most of the time, the market goes sideways during that time.
- Traders can also consider waiting for a credible stop entry such as a double bottom/top, wedge bottom/top, or a strong breakout with follow-through.
- Also, the range has been big the past few days, so traders need to be mindful of position sizes and trade small.
Friday’s Emini setups
Al created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The EURUSD rallied back to the open/high last week and found some profits from bulls selling. Bears would sell as well, betting on some bulls taking profits.
- The bulls want today to be a strong entry bar, increasing the odds of the Bulls getting a second leg up that will reach the 2017 low and bottom of the two-month trading range (May – June).
- While the odds are the market will rally over the next couple of weeks, traders do not yet know how the rally will unfold. The market could go straight up from here (unlikely), or the market could go sideways to up, making trading traders question if the bulls have taken control (more likely).
- What I mean is that today’s entry bar following Friday’s buy signal bar will likely be disappointing for the bulls, which will increase the odds of more sideways trading.
- The market will likely test the 2017 low and bottom of the two-month trading range soon. What traders are unsure of is how long it will take for the market to reach it.
- There were bulls who bought the 2017 low and the bottom of the two-month trading range, confident the market retested the lows even if it went lower. These bulls are strong scale in bulls who are more than happy to buy more at 1.0000 and will look to exit back at their original entry 2017 low. Some bulls will be disappointed enough to exit at the midpoint (breakeven on the entire trade), increasing the market stalling around 1.0200.
- The bears hope the market will continue to make lower highs and lower lows. While this is possible, it is not likely.
- Overall, the selloff from the June high is likely exhaustion, and the odds favor the daily chart transitioning into a trading range.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Al created the SP500 Emini charts.
End of day summary
- The market formed a trading range open that led to a strong bear trend day.
- The market gapped up on the open and went sideways into a triangle just above the moving average.
- The bulls tried to get an upside breakout around 8:45 PT and failed.
- The market could not find buyers at the moving average; eventually, the bulls gave up, and the bears got their bear breakout below the moving average.
- The bears got a bear breakout below the moving average around 9:50 PT, and the market became sell the close and the odds favored at least a second leg down.
- The market continued down in a very tight channel that formed a measuring gap late in the move (see chart), which led to a measured move down to around Friday’s low.
- Overall, today was a strong trend day with several consecutive sell climaxes. Traders should expect tomorrow to have a 75% chance of two hours o trading range trading starting within the first two hours of the day.
- Today was a good day for the bears and a reminder for the bulls that the daily chart is still in a trading range.
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.
Today was one of those days that remind you the low probability event can happen. Each of the big bear bars led to more selling rather than exhaustion.
Hi Brad and Al,
I understand everything on the chart except for 2 things:
1- Where the 2nd line of the MM is drawn (the 3 mentioned in the course are Height of prior leg, Height of TR , Height of BO, could you explain which please?
2- What happens when a exhaustion gap turns into a measuring gap? Don’t quite understand that
Thanks so much!
In case no one answers you.
1. Firstly, Al thought that the biggest bar coming late in bear trend, at 10.55 PT, was likely an exhaustive bar. So, after a small second leg down and followed by a good bull signal bar exactly at 60-min EMA, it was a swing buy setup. If you took this buy, it was a swing buy and a low probability bet, 40% chance of success. Bar at 11.40 PT showed us that it probably was a bear channel after the strong new bear spike, or in order words, small pullback bear trend continued. That’s why Al marked it as a MM bar instead of exhaustive bar. We didn’t know in advance but we knew after bar at 11.40 PT showed us. You can MM from High of Day to the low of the bull bar before this big bear bar.
Next, after failed wedge bottom of this bear channel, you could also MM from this wedge bottom to the Low of Day (From 11.20 to 12.00 PT).
Those two MM targets are near each others. You can choose those area to take profit depending on your entry and risk/reward ratio.
2. When there is a new target after MM instead of exhaustive one, you can look to short again near EMA, like the bar at 12.20 PT and exit around those MM targets.
Hope it helps.