Trading Update: Thursday October 12, 2023
S&P Emini pre-open market analysis
Emini daily chart
- The Emini rallied yesterday and closed above the August 18th low. However, yesterday was a weak doji, a sign of the bulls’ hesitation and lack of momentum. This will increase the odds of a pullback soon.
- The reversal over the past four trading days is strong enough to make the market Always In Long and increase the odds of a second leg up.
- The bears are hopeful that this week’s reversal up is a buy vacuum test of a 50% pullback from the selloff that began around September 14th.
- While it is a possible buy vacuum that will become a lower high in the bear channel that began back in July, the bears need to develop more selling pressure.
- The market will probably pull back for at least a day or two before the bulls get their second leg up. This is because the daily chart is in a trading range, and breakouts within trading ranges typically have deep pullbacks. These deep pullbacks allow trapped limit order bears to scale in higher and avoid a loss.
- The bulls are hopeful that any pullback will be small and the rally will continue higher. This would squeeze the bears and force the bears to buy back shorts at higher prices, driving the market higher.
- While the bulls have done an excellent job over the past four trading days, realizing that the daily chart is in a trading range is essential. This means the odds favor the bulls getting disappointed. This means the odds are against the market reversing quickly to the July high.
- More likely, the bulls will get a second leg up, and the market will go sideways. The market will probably test 4,500 soon, which is also the midpoint of the trading range that lasted from the middle of August to the middle of September.
- Overall, traders should expect a pullback soon for at least 1- 3 days and fall below a previous bar on the daily chart. Traders will pay close attention to how deep the pullback is. The deeper the pullback, the market disappointed the bulls will be and the more likely the market will go sideways.
Emini 5-minute chart and what to expect today
- Note: I am writing this report 3 hours before the open; therefore, the market may look different when the U.S. Session begins.
- The market has rallied during the overnight session and is currently above yesterday’s high.
- The bulls are hopeful that they will be able to close above yesterday’s high. However, the bulls must keep the market above yesterday’s high for the entire U.S. Session. While this is possible, the odds favor a pullback over the next few days and for today to be disappointing for the bulls. This means the market may rally above yesterday’s high on the open but fail to close above yesterday’s high. This would be a sign of decreasing momentum for the bulls.
- Traders should pay close attention to yesterday’s high, yesterday’s low, and the day’s open.
- As I often say, traders should consider waiting 6-12 bars before placing a trade on the open. This is because there is an 80% chance that today will be a trading range open and only a 20% chance that today will be a trend from the open.
- For the market to form a trading range, it needs to form a double top/bottom and a wedge top/bottom. This typically will require 12 bars to form.
- Yesterday formed a climactic rally into the close. There is a 75% chance that today will have at least two hours of sideways trading beginning before the end of the second hour. There is a 50% chance that the market will form a brief rally on the open, followed by two hours of sideways trading.
- There is only a 25% chance of a trend from the open up or down lasting all day.
- Traders should be ready for an opening reversal after any brief rally or selloff. This would create a trading range day.
- If the market does form an opening reversal, traders should pay attention to a possible measured move of the opening range. If the market gets a measured move of the opening range, traders should pay attention to the day’s open because it might be in the middle of the day’s range. This would increase the odds of a trading range day, making the day open a magnet later in the day.
- Overall, traders should be patient on the open. Traders should try and catch the opening swing that often begins after the formation of a double top/bottom or a wedge top/bottom. This usually takes an hour to develop. By waiting for the above pattern, a trader can place a swing trade with great risk-reward and decent probability (40-50%).
Emini intraday market update
- The market sold off on the open with five consecutive bear bars. The selloff was strong enough to increase the odds of a bear trend or trading range day, not a bull trend day.
- The bulls formed a strong reversal up around bar 8. The bulls want an opening reversal and another bull trend day. However, because of the reasons mentioned earlier in the blog, the odds are against it.
- Traders should assume the rally after bar 8 will lead to a trading range, not a bull trend day.
- As of bar 12, the bulls are testing the open of the day, however the odds are against a strong bull breakout.
- The selloff on the open is strong enough that the bears may get a second leg down. This means traders should be prepared for the market to test the low of the day.
Yesterday’s Emini setups
Al created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The EURUSD closed above the 20- Period Exponential Moving Average yesterday for the first time in since late August.
- While the bulls have done an excellent job, and the market is probably Always In Long, it is not clearly Always In Long. This means the market will probably go sideways and form a deep pullback before the bulls get their second leg up.
- The market has been away from the moving average for many bars, increasing the odds of sellers near the moving average.
- Because the rally up is tight, the bears may hesitate, increasing the odds of any selloff being minor and leading to a second leg up.
- It is important to realize that the channel on the daily chart is tight and is a breakout on the higher time frames (weekly chart). This means that the best the bulls can expect is a trading range on the daily chart, and the bears will probably get a second leg down on the weekly chart. However, it may take several months to form.
Summary of today’s S&P Emini price action
Al created the SP500 Emini charts.
End of day video review
Live stream videos to follow Monday, Wednesday and Friday (subject to change).
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
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.