Emini and Forex Trading Update:
Monday July 20, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini formed the 3rd consecutive bear doji bar on the daily chart on Friday. It is trading just below the February 24 high, which is the bottom of the big gap down on the weekly chart.
Traders expect the Emini to enter that gap this week. Then, there will be a 50% chance of a new high and a 50% chance of a reversal down to the middle of the 3 year trading range.
Each of the past 2 Monday’s gapped up on the open, but the gap closed during the day. The gap up created a 4 month island bottom with the February gap down.
The Emini might gap up again today in a 3rd consecutive attempt to create an island bottom on the weekly chart. But whether it does and whether the gap closes, traders expect a test into that February gap. It will probably come this week.
Overnight Emini Globex trading
The Emini is down 4 points in the Globex session. That is about 15 points below last week’s high. Consequently, the Emini will probably not gap up on the weekly chart. However, the Small Pullback Bull Trend is still intact on the daily chart. Therefore, traders continue to expect the Emini to work to above the February 24 high before the end of the month.
The past 3 days were bear dojis on the daily chart. That means that they were trading range days on the 5 minute chart. While three sideways days is a Breakout Mode pattern, 3 consecutive trading range days increase the chances of more sideways trading today. This is especially true with today probably opening within Friday’s range.
Everyone knows that the Emini is overbought and at the top of a 3 year trading range. There is therefore an increased potential for either a big trend day up or down. But traders expect trading range trading unless there is a series of big trend bars up or down on the 5 minute chart.
Friday’s setups
Here are several reasonable stop entry setups from Friday. 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 for 4 months. It has been in a Small Pullback Bull Trend for 4 weeks. It is testing the March high, which is the highest high in over a year.
However, the rally over the past month has had 3 legs up. It is therefore a wedge.
This wedge is nested within a bigger wedge that began on March 27. This nested wedge it testing a major high and therefore there is a potential double top with the March 9 high.
While the bull trend is good for the bulls, a nested wedge to a double top is good for the bears. This represents tension.
When there is the potential for a strong top, there is also the potential for a strong bull breakout. Bullish traders expect a couple closes above the March high and then a swing up. However, the bears want a reversal down to at least to the June low. The move up or down will probably last at least a few weeks and cover at 300 or more pips. It will probably begin within a couple weeks.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market broke above last week’s high. This week is now the 3rd consecutive week that traded above the high of the prior week. This is a sign of persistent bulls.
But the EURUSD only went 16 pips above last week’s high. On the weekly chart, that is a small breakout.
Also, the 5 minute chart has been in a 25 pip trading range for 6 hours. Day traders have been scalping for 10 – 20 pips.
The day’s range is similar that of most days over the past 4 weeks. Consequently, the range will probably not increase significantly. Therefore, day traders are planning to scalp for the rest of the day. They will switch to swing trading if there is a strong breakout or reversal, but the odds are against that.
The bulls want the EURUSD to close above Friday’s high and last week’s high. That would increase the chances of higher prices tomorrow.
The bears want a reversal down to the low of the day. However, they would be satisfied with a close below Friday’s high. That would slightly increase the chance of sideways to down trading tomorrow.
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 from a High 2 bottom at the 60 minute EMA and last year’s close. After a strong parabolic wedge rally, it entered a trading range for a couple hours. The trading range had higher lows and it was part of the Small Pullback Bull Trend that began at the low of the day.
The 4 month rally finally entered the gap on the daily and weekly charts above the February 24 high. The bulls who bought in late March and in April might begin to take profits at some point in the next week or two. There is now a 50% chance of a new all-time high and a 50% chance of a reversal down to the middle of the 3 year 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.
To clarify, the gap needs to close, but you are saying it has only entered though?
It does not need to close on the current run, but every gap down from a new high in history has eventually closed. I talked about this in a comment yesterday. The stock market has been in a bull trend since it began centuries ago. Every few years, it is at a new high. Therefore every prior gap down closed.
This one will as well, but not necessarily during the current rally. The Emini might first test down to the middle of the 3 year range.
The goal was to enter the gap. The Emini achieved that today.
Closing the gap on the current rally is less important. This is because the bulls who bought well (at the March bottom) are looking for a reason to take profits. If enough believe that entering the gap is a good choice, the Emini will reverse down. We should find out within 3 weeks.
Thank you so much for your explanation
Yes, thank you for the explanation Al.