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Emini Likely to Rally before Second Leg Down

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Trading Update: Monday December 19, 2022

Emini pre-open market analysis

Emini daily chart

  • The bears have four consecutive bars, which is a sign of strength and increase the odds that the first reversal up will fail and lead to a second leg down.
  • The Emini is likely to rally (bounce) over the next few trading days before there is a second leg down.
  • The Emini broke below the November 1 high and the November 15 month-long trading range.
  • The market is very close to the midpoint of the three-month rally that ended on December 13. The market will probably have to reach the midpoint soon, even if there is a pullback first.
  • The selloff over the past four trading days is a reminder that the overall daily chart is in a trading range.
  • The bulls want the market to form a higher low around the midpoint of the rally. However, the selloff from the December 13 high is a strong enough breakout that the bears will probably get the 2nd leg down.
  • The bulls need to do their best to disappoint the bears here. Bulls need to form a double bottom and a deep pullback closing far above the December 6 breakout point. This would increase the odds of any second leg down from the December 13 bear breakout being brief and not leading to much lower prices.
  • Overall, the bears have done an excellent job over the past four trading days. The market may bounce for a day or two. However, traders will still expect a second leg down.

Emini intraday market update

  • The market has been selling off in a tight bear channel.
  • The bears want a trend from the open, and the bulls want an opening reversal.
  • At the moment, it looks like the market will evolve into a trading range.
  • The bulls have a reasonable chance of an early Low of the day and the market closing above the open of the day.
  • The bulls got a strong rally back to the open of the day at 7:25 AM PT. The market has likely seen the low fo the day for the next couple of hours.
  • Tight bear channel down to bar 7:10 AM PT so probably limited upside.
  • Traders should continue to pay attention to the open of the day since the bulls will try and close above it, ended the bear streak on the daily chart.

Emini 5-minute chart and what to expect today

  • Emini is up 5 points in the overnight Globex session.
  • The Emini has been going sideways for most of the overnight Globex session.
  • Traders should expect a close above the open of the day ending the 4-day bear streak on the daily chart.
  • As always, traders should expect a trading range open and a limit order market. This means traders should consider not trading for the first 6-12 bars.
  • Traders can also consider waiting for a credible stop entry as a double top/bottom or a wedge top/bottom.
  • Traders, if the market is below the open of the day but not far, a trader should look for a possible bottom and reversal back above the open of the day. This is because the daily chart has four consecutive bear closes, and the market will probably try to close above the day’s open.
  • Lastly, traders should remember that there is no breakout until there is a clear breakout. This means it is important to be patient and wait for a clear breakout with follow-through breaking above/below resistance.

Friday’s Emini setups

Emini bull trap led to spike and channel bear trend that ended with wedge bottom. Emini Likely to Rally before second leg down.

Al created the SP500 Emini charts.

Here are several reasonable stop entry setups from Friday. 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

EURUSD Daily Two-Legs Down Likely
  • EURUSD has formed two consecutive bear bars closing below their midpoints, with one closing on its low.  
  • The bulls have a credible wedge top, and the odds favor a selloff down to the December 12 low at a minimum. This breakout led to the final leg-up in the rally.
  • The channel up is tight, which increases the odds that any selloff will be minor and lead to more sideways trading than a strong bear breakout.
  • The market will likely have to test the moving average (blue line) soon since it has been away from it for over 25 bars.
  • The market may have to get down to the December 8 low, which was the final leg of the rally. Typically, when the market forms a wedge, it will test the start of the third leg in the wedge.
  •  The market may have to reach the November 21 low, which was the start of the channel.
  • The Rally up to the December high is likely a minor reversal on the weekly chart. This means the weekly chart traders expect a pullback to fall below the November 21 low over the next several months.  
  • Overall, while the bulls have done an excellent job forming a tight channel, the odds favor a two-legged pullback to the moving average at a minimum. The bulls may give up, and the market gets a sell vacuum test of the moving average; however, more likely that the market will go sideways to down.

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 DT that led to a bear-trend day.
  • The bears trapped the bulls around the high of bar 1 during yesterday’s rally at 7:25 AM PT.
  • The selloff to around 8:45 AM PT formed a wedge bottom; however, the channel down was tight, and the wedge was likely to only lead to a minor reversal up.
  • The market formed a triangle (blue lines) for a couple of hours, and the scale in bulls who bought earlier in the day started to sell out of longs as the market broke below the triangle.
  • The market formed a sell-the-close market down to the 12:00 lows and rallied into the close.

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

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.

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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