Emini Likely Small Second Leg Up

Trading Update: Thursday December 22, 2022

Emini pre-open market analysis

Emini daily chart

• The Emini gapped up yesterday and rallied above the December 15^th high. This is a sign of strength by the bulls and a warning that the pullback may be disappointing for the bears. Likely small second leg up.
• Although yesterday failed to close on its high, the bulls managed to get a close above the bar’s midpoint, which is a sign of strength and increases the odds that the bulls will have a minor higher low and at least a small second leg up.
• The bulls want to return to the December 6^th breakout point low, which is also the low of the month-long trading range. Some bulls bought there, and they are likely disappointed enough to be happy to exit back at their original entry (December 6^th low area).
• The bears still expect a second leg down from the December 13^th selloff. If the bears are sufficiently disappointed, the pullback from the December 13^th selloff could last a while.
• Some bears see the 3,900-price level as a breakeven price from the bears who sold the October breakout and higher such as the December 13^th low. The bears would be sufficiently disappointed by the November-–December rally that they may be interested in exiting the entire trade around breakeven, around the 50% pullback of the two-month rally.
• The daily chart may form a large triangle, meaning the range might contract. If the daily chart is forming a large triangle, the Emini may go sideways for several months on the daily chart.
• Overall, the market will probably go sideways into end of the year, with the upside and downside being limited. The bears will try for the second leg down, and the bulls will try and close above the December 6^th trading range low.

Emini 5-minute chart and what to expect today

• The Emini is down 40 points in the overnight Globex session.
• Bears have managed to get a selloff down below the trading range low that began around 9:30 AM PT following yesterday’s early morning bull breakout.
• The bears want to undo the damage caused by the bulls yesterday, and the bulls want the overnight Globex selloff to be a pullback from yesterday’s rally. They want today to lead to another bull trend day, further disappointing traders.
• As always, traders should expect a trading range day and the market to go sideways for the first 6-12 bars today.  Most traders should consider not trading for the first 6-12 bars unless they are comfortable with limit order trading.
• Traders can wait for a swing trade after a credible double top/bottom or a wedge top/bottom.
• Lastly, as Al often says, a trader must remember that “Price is Truth” as Al often says. This means traders must remember not to deny what the chart tells them. Traders must respond to the chart in front of them, not what they hope the market will do.
• If the day opens as a trading range, assume the market will continue as a trading range until there is a clear breakout. If the market forms a trend from the open, look to trade with the trend.

Yesterday’s Emini setups

Al 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 is forming a tight trading range, which puts the market in breakout mode, just above the moving average.
• The market will probably get at least a small second leg down to the moving average and the
• December 12^th is the bottom of the most recent leg up.
• The channel is beginning to form a clear wedge top at an obvious resistance level from the measured move-up (Purple line) based on the November 10^th and 11^th bull breakout.
• While the market is in a tight bull channel which is a dangerous environment to look for shorts, the market is climactic and has been away from the moving average for over 29 bars, which is extreme.
• Overall, the EURUSD is likely to pull back for a couple of legs at a minimum and get down to the moving average.
• The rally up to the December high is the first trendline breakout of the tight bear channel on the weekly chart. This increases the odds that this rally will have a deep pullback below the November 21^st low, forming a higher lower major trend reversal on the weekly chart.

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 was a small pullback bear trend from the open that led to a late reversal above the December 20^th low.
• The bears were able to get a bear breakout and follow through on the first two bars of the day, following a gap down on the open. This increased the odds that the market was Always In Short, and traders would sell betting on at least a second leg down.
• It is essential to realize that the bulls could not get two consecutive strong bull trend bars for the first 50 bars, which is a sign that the bear is very strong.
• Although the bulls could create several minor wedge bottoms during the first couple hours of the day, they only led to brief sideways pullbacks.
• Small pullback bear trends are constantly forming wedge bottoms. However, they will typically lead to just sideways price action and not a strong bull rally. This is because a small pullback bear trend is a strong breakout on a higher timeframe chart (see 15-minute chart).
• The bulls formed a wedge bottom at the low of the day, which followed a head and shoulders bottom (HSB). The market had been away from the moving average all day, and the selloff was becoming extreme. This increased the odds of a possible sharp reversal up, meaning traders should expect at least a couple of legs up, testing the moving average and the most recent lower high.
• This afternoon led to a low-probability event, however. The Head and Shoulders bottom at the day’s low should have led to a minor reversal and gone sideways around a significantly lower high. Instead, the rally continued for the rest of the day.

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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