Emini Oversold Market, Expect Rally for Couple of Days

Trading Update: Tuesday December 20, 2022

Emini pre-open market analysis

Emini daily chart

• The bears now have five consecutive bear bars in an Emini oversold market.
• The odds favor a rally to relieve the bears. The selloff is strong enough that the odds favor a second leg down after any rally.
• Traders will pay close attention over the next few days to see what the bulls can do.
• Since the daily chart is in a trading range, traders will expect the bears to become disappointed and for the pullback to be deeper than what bulls want.
• Since the first reversal up will likely be brief, most bulls buying will likely scalp out, betting on more sideways to down after a brief rally.
• Bulls will buy yesterday’s close because the daily chart has had five consecutive bear closes, which is climactic behavior and likely to lead to a pullback.
• The market had a deep pullback last time the bears had five consecutive bear bars on the daily chart. The bulls will expect the same thing to happen here and buy betting on a disappointing pullback for the bears.
• Overall, while the bears have done an excellent job, the market is likely oversold. This means traders will buy betting on at least a brief rally lasting at least a few days. Traders expect today to close as a bull bar, ending the five-day bear streak.

Emini intraday market update

• The bears failed to get a successful breakout below yesterday’s low on bar 4, and the market had a strong reversal up on bar 6 (7:00 AM PT).
• The close of bar 6 made the market always in long and likely to test higher and reach the apex of yesterday’s triangle (midpoint of yesterday’s range around 10:30 AM PT).
• The market has probably seen the day’s low and will remain a bull trend or a trading range day.
• Since the daily chart has been so oversold, the market might have a strong rally today. More likely, today will begin to go sideways around yesterday’s midpoint (Apex of the triangle).
• Traders will buy the close of 6, betting on a couple of legs up at a minimum and a possible bull trend lasting most of the day.  
• Bulls will also likely scale in lower betting on a bull trend or trading range. This will limit the downside and probably prevent the day from becoming a bear-trend day.

Emini 5-minute chart and what to expect today

• Emini is down 4 points in the overnight Globex session.
• The Globex Market had a sharp selloff late yesterday, followed by a climactic reversal early this morning.
• The selloff that began late yesterday was a sell climax late in an oversold market. This increases the odds that the market will rally above 3,855 today, the Globex chart’s most recent major lower high.
• Traders will expect today’s U.S. Session to have a bull close, ending the five-bar bear streak on the daily chart.
• As always, traders should expect the market to go sideways on the open, which means most traders should consider not trading for the first 5-6 bars.
• Traders can also consider waiting for a credible stop entry as a double top/bottom or a wedge top/bottom.
• Lastly, traders should expect a close above the open of the day. If the market is below the open but not far below it, traders should expect a reversal back to the open of the day.

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 now has a three-bar bear micro channel after forming a wedge top at an important measured move projection (Purple Line).
• The bulls have a High 1 buy signal bar (yesterday). However, the signal bar is a doji, and the odds favor a second leg down. This increases the risk of sellers above yesterday’s high.
• The bulls want the small pullback bull trend to continue up. However, the odds are that the market will get a pullback back to the moving average (blue line).
• At a minimum, traders will expect a pullback to the low of the December 13^th breakout. This is the start of the last leg up in the wedge. However, it is possible that the leg began on December 7^th. This means that the market may have to reach the December 7^th low.
• Overall, the rally over the past month is the first upset breakout of a tight bear channel on the higher time frames. This means the market will likely have a deep pullback to at least the November 21^st price level, creating a higher low major trend reversal. This could take several weeks, though, so traders should expect sideways for now on the daily 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

• I will update at the end 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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