Emini 3-day island top and double top with September high

Emini and Forex Trading Update:
Thursday October 15, 2020

I will update again at the end of the day.

Pre-Open market analysis

The Emini will probably gap down today. That would form a 3-day island top on the daily chart.

While most island tops and bottoms are minor, the context here is good for the start of a swing down. Traders would wonder if the 4-week rally is reversing down from a double top with the September high. If this week closes on its low, it would be a sell signal bar on the weekly chart.

Remember, this week gapped up on the weekly chart. I said that the gap would probably close before the end of the week. Yesterday’s selloff closed the gap above last week’s high. So far, this week is a bear reversal bar. If the week closes on its low, it will be a sell signal bar on the weekly chart.

The Emini is still in a 2-month trading range. In trading ranges, nothing is clear, and both the bulls and bears get disappointed. A drop below the October 6 high, which was the top of a month-long trading range, will disappoint the bulls, just like last week’s rally disappointed the bears.

But in a trading range, the legs up and down don’t last long. Traders look for reversals. However, a couple closes below that October 6 high will make traders believe that this week’s rally was the 2nd leg up in a double top and that the Emini will continue down to test the September low. A strong break below that low will make traders look for a 400-point measured move down to 2800.

Overnight Emini Globex trading

The Emini is down 44 points in the Globex session. It will therefore gap below yesterday’s low. What happens today can affect what the Emini will do over the next few weeks.

If today sells off strongly to far below the October 6 high, traders will wonder if this week’s is reversing down from a double top with the September high.

If today rallies from the gap down, traders would see the 3-day selloff as just a breakout test of the top of the top of the September trading range. Today would become a High 1 bull flag on the daily chart, and traders would look for at least a small 2nd leg up.

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 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 has been breaking below a 3-week wedge bear flag. The bears hope that the bear channel down from the September 1 high will continue down to below the breakout point of the June 10 high.

But so far, the 4-day resumption of the bear trend lacks consecutive big bear bars closing on their lows. That makes the bulls hopeful that it is simply a test of the September 30 low, which was the start of the small wedge rally. The bulls will try to form a double bottom with either that low or the September 25 low.

While the daily chart is forming lower highs and lows, it is still in its 3-month trading range. This week makes the chart slightly more bearish, but unless the selloff starts to form consecutive big bear bars, the bulls will continue to buy. They hope that the past 7 weeks are just a pause in a strong bull trend.

I mentioned over the weekend that the 2-week reversal up was a Low 1 bear flag on the weekly chart. But I also said that there would probably be more buyers than sellers below its low because last week was a big bull bar and the 2nd consecutive bull bar.

That means the bulls have been aggressive. A big bull bar is a low probability sell signal bar. The 1st reversal back down usually does not get far. The EURUSD tested below last week’s low overnight. We will find out if the bulls will buy below the weekly sell signal bar.

Overnight EURUSD Forex trading

The 5 minute chart of the EURUSD Forex market sold off overnight to just below last week’s low. That triggered a weekly Low 1 sell signal. But because last week was a big bull bar, it is a weak sell signal bar. There might be more buyers than sellers below.

The overnight selloff also is testing the September 30 low on the daily chart. That was the start of the 2-week wedge rally. The bears often take some profits there. This can lead to a bounce and the market going sideways for several bars (days).

Will the weekly and daily support hold?

Traders are wondering if the overnight selloff is just a sell vacuum test of the support on the daily and weekly charts or the start of a bear trend. With the 5 minute chart stalling for several hours, the support so far is holding.

If the bulls can prevent today from continuing far below the support, many bulls will buy over the next few days. This will result in a trading range instead of a resumption of the bears trend. That would make the chart more neutral instead of bearish.

Because the EURUSD has been going sideways for several hours at support, day traders are willing to buy. While the overnight selloff was strong enough to make a bull trend reversal unlikely today, the sideways trading at support reduces the chance of much lower prices today. Therefore, the 3-hour trading range will probably continue. Day traders will buy and sell for 10 to 20-pips scalps.

The bears will try to get today to close on its low and below the support. That would increase the chance of lower prices tomorrow. However, the bulls will try to get today to close above the support and back above the midpoint of the day’s range. Most likely, today will continue its trading range and close around the support or a little above.

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 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 gapped down, which created a 3-day island tops. However, island tops and bottoms typically are minor patterns. The Emini rallied from the open in a bull channel for the 1st half of the day and then in a Small Pullback Bull Trend for the 2nd half. It closed the gap below yesterday’s low.

Because today had a bull body on the daily chart, it is a buy signal bar for tomorrow. Since it is the 1st buy signal since Monday’s high, it is a High 1 buy signal. The bulls hope that the 3 day selloff was simply a test of the breakout point at the October 6 high.

It might be, but after a sharp pullback, many bulls will prefer to buy after they see a micro double bottom. That reduces the chance of a big bull day tomorrow.

Tomorrow is Friday and therefore weekly support and resistance can be important. The most important price is this week’s open. The bears want the week to close below the open. The candlestick on the weekly chart would then have a bear body. That would increase the chance of lower prices next week.

But the Emini has been in a trading range for 2 months. Traders are looking for reversals every few days. A reversal up next week would be no more important than this week’s reversal down. Until there is a sustained move up or down, traders will expect the trading range to continue.

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 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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