Emini 2nd consecutive failed 4 month island bottom

Emini and Forex Trading Update:
Tuesday July 14, 2020

I will update again at the end of the day.

Pre-Open market analysis

The Emini gapped up on the weekly chart, but like last week, the bulls could not keep the gap open. There are now consecutive failed island bottom attempts.

In addition, the month-long wedge rally is reversing down from a double top with the June high, which is a common reversal combination. Also, the Emini reversed down from above the 2019 close. Finally, yesterday closed near its low and it therefore a good sell signal bar for today.

If the bears can get follow-through selling over the next few days, this week will probably be the start of a pullback to the middle of the 3 year trading range.

One problem that the bears have is that yesterday was a big bar on the daily chart and it closed near the bottom of a 7 day tight trading range. A big bar means big risk.

Also, selling at the bottom of a tight trading range is a low probability bet. Therefore, yesterday is not as bearish as it might seem. The bears need strong follow-through today. Otherwise, traders will believe that yesterday is just a brief pullback in a bull trend.

The bulls need a quick reversal back up today or tomorrow. If today is another big bear day, the odds will be in favor a test of the bottom of the month-long trading range.

Overnight Emini Globex trading

The Emini is down 8 points in the Globex session. There might be a small gap down. Small gaps typically close in the 1st hour.

The Emini had a sell climax yesterday. There is only a 25% chance of a big bear day that begins on the open today.

Traders know that there is a 75% chance of at least a couple hours of sideways to up trading beginning by the end of the 2nd hour today. The bulls want a close above the open so that today would have a bull body on the daily chart. That would reduce the chance of a successful reversal down on the daily chart. If today closes near its high, traders will suspect that yesterday was a bear trap and that the rally up to the February gap is intact.

But if today closes near its low, and especially if it is a big bear day, traders will expect a test down to the bottom of the month-long trading range.

Traders do not yet know if yesterday’s bears are exhausted. But they believe that the bears will begin to take some profits before the end of the 2nd hour.

Once the bears take profits, the bear trend typically ends for at least a couple hours. That usually leads to a period of confusion, which means a trading range. Traders will then look for either a reversal up or a resumption down.

The most important price today will be the open. The bears want a bear body on the daily chart and the bulls want a bull body.

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. I rarely also show limit order entries and entries on the close of bars. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. Buyers of 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 has rallied in a Small Pullback Bull Trend since June 19. However, it is still in a month-long trading range. Therefore, the probability of a successful breakout above the March 9 high is only slightly better than 50%. But if the bulls get consecutive closes above that high, traders will conclude that the yearlong trading range has ended and a bull trend has begun.

The bears want to get a reversal down. They prefer to get it from below the June 10 or March 9 highs. Most importantly, they need to reverse the trend before there are consecutive closes above the March 9 high. They do not want traders to believe that the EURUSD has evolved into a strong bull trend.

The bears need a couple big bear days for traders to conclude that the month-long rally is ending. Without that, traders will continue to expect at least slightly higher prices.

Overnight EURUSD Forex trading

The 5 minute chart of the EURUSD Forex market has rallied for 4 hours. It is again above the July 9 high, which was the top of a small wedge rally.

The bulls want today to close above yesterday’s high. Today would then be a breakout day. Traders would then look for a measured move up. That would lead to a test of the March 9 high.

The odds of a test of the March 9 high will be higher if today grows into a big bull day closing far above yesterday’s high. But the minimum that the bulls want is a close above yesterday’s high. They therefore will buy pullbacks today.

The rally has been having 10 – 15 pip pullbacks after every few bars. Also, the bull bars are not particularly big. Traders see that rally as not very strong. Also, the EURUSD is stuck at yesterday’s high. This increases the chance of the EURUSD entering a trading range around yesterday’s high.

However, today is still in a bull channel on the 5 minute chart. Therefore, it is easier for day traders to make money as buyers.

But if the EURUSD begins to have 20 – 30 pip pullbacks, day traders will begin to sell for scalps. If there is a trading range that lasts a couple hours, the bears will have a chance of a reversal down.

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. I rarely also show limit order entries and entries on the close of bars. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. Buyers of 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 reversed up twice from below yesterday’s low. That was a High 2 bottom. It rallied for the rest of the day.

The rally was in a broad bull channel and the bears sold reversals down from new highs all day.

However, the day closed near its high and today is a big bull bar on the daily chart. It erased most of yesterday’s bearishness. Today is now a buy signal bar for tomorrow. But, the Emini has been in a tight trading range for 7 days. That reduces the chance of a big bull trend tomorrow.

With today’s Big Up after yesterday’s Big Down, there is Big Confusion. That increases the chance of trading range price action tomorrow.

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

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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.

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