Emini and Forex Trading Update:
Wednesday February 3, 2021
I will update again at the end of the day.
Pre-Open market analysis
The Emini has been in a trading range for a month, and a buy climax at top of trading range. Traders are buying selloffs and selling rallies. The bulls reversed the market up after 2 big selloffs over the past 5 days. They want a new all-time high. But after a big 2-day rally, there is an increased chance of a selloff for a day or two.
The bears are hoping that the rally will fail at the top of the January trading range. They want a reversal down, and for the Emini to break below the trading range, and fall for a 200-point measured move. That would be a test of the November 10 low, which was the start of a 2-month bull channel.
When a channel reverses, the start of the channel is a magnet. If it reaches that target, the Emini typically then goes sideways for at least another 10 to 20 bars. A channel usually evolves into a trading range, and then traders look for the next breakout. The Emini has already evolved into a trading range. Traders are deciding if that is enough of a pause in the bull trend for the bull trend to resume, or if the Emini will test the start of the channel at 3,500.
Trading ranges are neutral, although they are more bullish near the top and more bearish near the bottom. Traders should assume that the probability of a successful breakout is about the same for the bulls and bears, until they see a strong breakout.
The legs up and down in a trading range tend to lack consecutive strong trend bars. That often makes it impossible to know if a leg will break above, or below the range. By the time the breakout is clear, the Emini will already be halfway to its target.
Until the Emini is clearly trending, traders will bet on reversals. It is getting near the top of the range, and therefore traders will look for a minor reversal tomorrow or soon. But the bulls are hoping that this 2-day rally will continue up to 4,000.
Overnight Emini Globex trading
The Emini is up 13 points in the Globex session. It will probably open within yesterday’s trading range.
As strong as the past 2 days were, they might have been too strong. If a market rallies a long way like it has for 2 days, without much of a pullback, it tends to attract profit takers. The profit taking creates a pause or pull back in the trend. Yesterday was a pause, but it might not have been enough to make bulls eager to buy again.
The bulls see yesterday as a bull flag. They want yesterday morning’s bull trend to resume up to a new high. However, the bears are hoping that yesterday’s late selloff will be the start of 2 or more legs down.
With today opening within yesterday’s range, there is an increased chance of more sideways trading before traders decide on the direction of the breakout. They will continue to look for small reversals until they see a series of strong trend bars up or down. Because today will probably see more profit taking, there is an increased chance of at least one swing up, and one swing down today.
Yesterday’s setups
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.
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
The EURUSD Forex market on the daily chart broke below the bottom of the 2-month trading range yesterday. Today traded below yesterday’s low, and it is therefore a 2nd consecutive breakout day. However, yesterday did not close below the January 1 low, and so far, today’s close is also above that support. Additionally, this month-long selloff is still 5 pips above the support of the 1.20 Big Round Number.
The bears need consecutive closes below the range to confirm the breakout. While the odds are slightly better for a bear breakout than a bull breakout, until there is a confirmed breakout, there is no breakout.
The reason why there are not yet consecutive closes below the range is that the bulls so far have been buying enough to contain the bears. They want the selloff to simply be a test of support at the bottom of a trading range.
But the bulls need a strong reversal up. Without that, the bears will probably get their 2 closes below the range, and the EURUSD will probably continue down to the November 4 low at 1.16.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market has sold off in a broad bear channel overnight. It has reversed up several times from just above the 1.20 Big Round number over the past few hours. However, the reversals were brief.
The EURUSD 5-minute chart has been in a triangle for a couple hours. This is a Breakout Mode pattern. It means that the bears are scalping out of their shorts just above 1.20, and the bulls are willing to buy. However, both sides have been scalping. They are waiting either for a strong bear breakout or a strong reversal up. Until they see that, they will continue to scalp.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Here are several reasonable stop entry setups for today. 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.
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.
End of day summary
The Emini sold off on the open to below yesterday’s trading range. It reversed up from a parabolic wedge bottom to above yesterday’s high. Like the past 2 days, it sold off again at the end of the day. But also like the past 2 days, it again closed above the open.
The Emini is at the top of the 5-week trading range. The bulls want another new high. However, there will probably be sellers around the old high since reversals are more common than successful breakouts when a market is in a trading range.
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. I talk about the detailed S&P Emini futures price action real-time throughout the day in the BrooksPriceAction.com trading room. We offer a 2 day free trial.
Charts use Pacific Standard Time
When I mention time, it is USA Pacific Standard Time (the Emini day session opens at 6:30 am PST, and closes at 1:15 pm PST). You can read background information on the intraday market reports on the Market Update page.
Hi Al, with the first break of the trend line at around 12:00 was it low probability that there wasn’t a test of the HOD after the break?
Thank you
I had been saying all day in the chat room that the rally was probably a bull leg in a trading range day and that there could be a test down to the open of the day. Legs up and down in trading range days usually do not have major trend reversals.