Trading Update: Thursday May 19, 2022
Emini pre-open market analysis
Emini daily chart
- Emini yesterday was a big bear trend day reversing the past three trading days. This is a sign that the market may have to go lower and likely reach 20% correction (3,839.75).
- May 18 is a big enough surprise bar to increase the odds of a second leg down.
- The bears are hopeful that they will get follow-through today and increase the probability of a bear breakout below May 12.
- One problem the bulls have on the higher time frame charts is that the market reached a 19% correction, but not a 20% correction. It is possible that the buying from May 12 – May 17 was due to institutions front running and buying just above a 20% correction (they bought a 19% correction) just in case the market never reached a 20% correction.
- These traders were confident the market would get a bounce at least big enough for a tradable scalp. The bulls were disappointed by the rally up to May 17 and took profits.
- The above makes me think the market will have to reach a 20% correction (3,839.75) and fall below May 12 low. That would require the market to fall at least 15 points below May 12, triggering a 20% correction. If the market reaches a 20% correction, it will likely have to drop lower than 3,839.75 since the market usually has to probe past a support or resistance level.
- The bulls hope that today will be a strong bull bar closing on its high. For the bulls to completely reverse yesterday, they would need a very impressive bull close today. Because of what I said above, too many traders are likely worried that the market will have to reach a 20% correction, so more and more bulls started exiting longs during yesterday’s selloff.
- Lastly, the bears still have a chance of a measured move down from the February to April trading range, in which the first target would be around 3,600. It is not likely; however, if the bears get a strong breakout below May 12, the probability will go up for the bears.
Emini 5-minute chart and what to expect today
- Emini is down 20 points in the overnight Globex session.
- The bears got within 1 point of the May 12 low during the overnight Globex session.
- The bears have a reasonable chance of falling below the May 12 low today.
- Today will gap down, and the bears hope they can get a repeat from yesterday. However, the bear’s problem is that yesterday was so climactic that it lowers the probability of today being a big bear trend day.
- Since yesterday was so climactic, there is a 75% chance of at least 2 hours of sideways trading that will begin sometime between 6:30 AM PT and 8:30 AM PT.
- The market could start the sideways trading immediately on the open, or the market could sell off first for an hour and then go sideways for 2 hours. Either one of the above scenarios would satisfy the 2 hours of sideways. Less likely, the market continues down in a strong bear trend all day.
- The bulls hope that today will be a strong trend from the open bull trend day, and the market will get a bull bar closing on its high.
- The most crucial thing to remember is to be patient and let the market show you what it will do. If today is going to get a strong bull trend from the open, there will be plenty of signs and opportunities to buy. The same goes for a bear trend from the open.
- More likely, traders should expect trading range price action and be patient. Trading ranges reverse several times, which means one can quickly be down many points betting on breakouts.
- In general, most traders should wait for a credible stop entry or a strong bull breakout with follow-through. If a trader has trouble trading the open, they can consider waiting for 6-12 bars before placing a trade.
Yesterday’s Emini setups
Al created the SP500 Emini charts.
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The bears had a big bear bar yesterday, closing on its low and reversing most of May 17.
- So far, today has almost reversed all of yesterday’s strong bear trend bar and will likely break above it.
- As strong as yesterday’s bear trend bar, the context is not great. While it was at the moving average, it followed three consecutive bull trend bars and a credible reversal up from a possible final flag setup. The odds were there would be a second leg up from the 3-bar rally up to May 17, so yesterday was more likely a breakout pullback buy setup.
- Ultimately, the bulls need to break above the moving average and close above it to convince traders that this is the start of the rally up to the May 5 high and the bottom of the March – April 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 had a triangle on the open, which is a breakout mode pattern. In general, the probability of a successful breakout up or down is 50%.
- The market had an upside breakout around 8:30 PT. However, the rally was a 2nd leg trap and parabolic wedge top, leading to a selloff back into the initial triangle.
- While the bears got the reversal down from the 2nd leg trap, the rally up to 8:30 PT was strong enough that the best the bears could expect is a trading range, which means traders would look to buy and sallow that had a couple of two or three legs down.
- The bulls got another rally that sold off at 12:05 PT. This was a nested wedge top and 2nd leg trap.
- Today was a trading range day, and the overall challenge with trading range days is that when the market looks strong, one is better off looking to fade the move than bet on the breakout.
- For example, the rally up to 8:45 looks strong, but it’s the possible top of a trading range. So a trader is better off looking to buy a pullback.
- The other challenge with trading range days is that the reversals are never apparent. For example, bar 5 is a reasonable buy, but it follows two big bear bars, leading to a test of the open. The two-bar bear breakout looked like it should have had a second leg down. However, the market reversed up on the next bar.
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.