Emini Surprise Bear Breakout, Second Leg Down Likely

Trading Update: Thursday January 19, 2023

Emini pre-open market analysis

Emini daily chart

• The Emini sold off yesterday, forming a surprise bear breakout.
• Yesterday was a strong enough breakout bar that the odds favor a small second leg down. This means the first reversal up will likely fail.
• The bears hope that yesterday is the start of a large second leg down with the December 13^th selloff.
• The December 13^th selloff had five consecutive bear bars and was strong enough for the market to get a second leg down. The problem the bears had during the December 13^th selloff was that it was in an overall trading range at support, which increased the odds of a deep pullback.
• The first target for the bears is the December 22^nd low, which is the bottom of the first leg down.
• The bulls tried to get a successful bull breakout of a bear flag and create a measuring gap with the January 9^th high.  However, the bulls gave up on that idea yesterday.
• The bulls that bought over the past four trading days are now trapped in a losing trade. The bears are trapped out of a good short and will use any rally to get short or add to their short positions. They will likely use any bounce to exit their trades with a smaller loss.
• The bears want follow-through today and for the market to trap even more bulls.
• Overall, yesterday was a strong surprise bear trend bar and will likely have a second leg down. This will limit the upside over the next couple of days. The bears want to create consecutive strong bear trend bars to increase the odds of lower prices.
• The bulls want to create a micro double bottom and get a second leg up from the January rally.  They hope that yesterday is just a pullback from the rally that began in late December 2022.

Emini 5-minute chart and what to expect today

• Emini is down 30 points in the overnight Globex session.
• The Emini sold off and got continuation down during the early morning Globex session today.
• The bears want today to gap down and create follow-through selling during today’s U.S. Session.
• While the odds favor a trading range on the open, traders should pay close attention to signs of trending behavior today.
• If the market starts to form consecutive trend bars on the open, traders cannot be in denial and must find a way to enter the trend’s direction.
• However, with the market having a big gap, traders should wait for strong buying pressure before getting long. It is common on large gap days to get a second leg in the first two hours. For example, if today is a large gap down open, traders should expect a second leg down within the first two hours.
• It is important to remember that gaps and breakouts have the same overall meaning. This means that traders should expect both to have a second leg in the direction of the breakout/gap.
• As always, most traders should wait for 6-12 bars before looking to place a trade. This is because the open usually has a lot of sideways trading.
• Traders can also wait and enter a swing trade after the market has formed a double top/bottom or a wedge top/bottom.
• Lastly, while the bears are hopeful that today will be another bear trend day, creating follow-through for the bears, traders should pay close attention to the open of the day, especially if the open is in the middle 1/3^rd of the range.
•  The bulls will try their best to prevent a bear close today, and the bears want the opposite.

Emini intraday market update

• The Market gapped down and formed two consecutive bull bars on the open.
• The bulls tried to form a trend from the open bull trend; however, they failed, and the bears got a second leg down from the gap.
• The bears are trying to form a small pullback bear trend. However, there is a lot of buying pressure during the first 18 bars.
• This increases the odds that the market will soon begin to go sideways and enter a trading range.
• As of bar 18, the market is always in short and will probably have to form at least a micro double bottom before the bulls can get a reversal back up.
• The market is forming a wedge bottom, which will increase the probability of a couple of legs sideways to up and a test of the moving average.
• Overall, traders should expect the channel down to form a trading range. Less likely, the market will continue to go lower in a small pullback bear 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 has been going sideways for the past five trading days.
• The bulls want a second leg up from the rally that began on January 6^th.
• The bears want the January 6^th rally to fail above January 2^nd and for the trading range trading to continue.
• Now, the odds favor a second leg up; however, it will likely be limited and brief.
• More likely, the bulls will be disappointed soon, and the market will fall under the January 2^nd high.
• The bulls need a higher low major trend reversal on the higher time frame chart, such as the weekly chart. This means that the market will likely have a deeper pullback than what the bulls want to see on the daily chart.
• Overall, traders should expect a test of the January 6^th low soon. However, it may take several weeks for it to get tested.

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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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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