Emini and Forex Trading Update:
Monday May 4, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini reversed down last week from a nested wedge top on the daily chart. This is probably the start of a 2 – 3 week pullback to around 2600. Since the 6 week bull trend has been strong, the selloff will likely be weak. That means traders should expect bounces along the way.
On the weekly chart, last week was a reversal bar. The Emini went above the 20 week EMA and reversed down, as I said it was likely to do. Last week is therefore a sell signal bar for this week.
Since it reversed down from the EMA and the weekly chart was in a buy climax, this week will probably fall below last week’s low. Since The Emini is down 80 points in the Globex session, it will probably gap below last week’s low. That would trigger the sell signal. But after 6 weeks without a pullback, traders will look to buy a 2 – 3 week pullback.
Overnight Emini Globex trading
The Emini is down 30 points, which would trigger the weekly sell signal. Traders believe that a 2 – 3 week pullback is underway.
They are probably correct, but the selloff is a pullback in a 6 week bull trend. It is therefore unlikely to go down very fast. Day traders expect some strong bull trend days along the way.
When there is a big gap down, the Emini is far below the EMA on the 5 minute chart. Day traders do not want to sell too far below the average price. That limits the number of sellers on the open. The big gap down limits the number of buyers.
This results in confusion. Day traders expect that a double top or bottom or a wedge top or bottom will be necessary before there is clarity. There is only a 20% chance of a relentless trend day from the open.
The first few bars will tell traders if today will have a trading range open. If there is one, they will expect a 2 – 3 hour trend to follow. But, because a trading range open represents balance, a trend coming from it usually does not continue for the rest of the day.
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. 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 had a strong enough rally last week for traders to expect at least a small 2nd leg up. Consequently, even though there is a double top with the April 15 high, the bears will probably need a micro double top.
They want a reversal down to below the April 24 low. That is the neck line of the double top. Then, they want a measured move down to below the March 23 low. Ultimately, they would like the 2 year bear trend to get below par (1.0).
But the EURUSD daily chart has been in a trading range for a month. Furthermore, that trading range is nested within a 9 month trading range. Markets resist change. Traders will assume that every strong breakout attempt will fail, like all of the others for 2 years. That means traders look for reversals every few weeks.
While last week’s rally was not particularly strong, it is strong enough for traders to expect buyers below yesterday’s low. The bears will probably need at least a micro double top before they can get a leg down.
And even then, the April 27 rally was strong enough for traders to expect a test of its high. Therefore, despite the month-long trading range, the EURUSD daily chart will probably work higher over the next couple weeks. This is true even if it sells of for 2 – 3 days.
But if the bears get consecutive closes below the April 24 low, traders will expect a break below the March 23 bottom of the 9 month range.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market trended down overnight. By going below Friday’s low, it triggered the double top sell signal on the daily chart.
But Friday had a bull body. That is a weak sell signal bar. In addition, it was the 3rd consecutive bull days. That is weak context for a reversal down. Therefore, traders expect limited downside today.
While today triggered a sell signal on the daily chart, it then went sideways instead of down. Today so far is a weak entry bar for the bears in a weak sell setup. The bulls want today or tomorrow to close near its high. That would create a buy signal bar for a test up to the March 27 high.
The range has been only 20 pips for 6 hours. Day traders are scalping for 10 pips. While they would prefer a strong breakout up or down so that they could swing trade, they will continue to scalp until there is a clear breakout.
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. 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
After a brief selloff following the gap down open, the Emini rallied back above last week’s low. However, it entered a tight trading range, which is a Breakout Mode pattern. There was trend resumption late in the day.
On the daily chart, the Emini has had minor reversals every few days for a month. Traders therefore expect a 1 – 2 day bounce starting tomorrow. Today is a High 1 bull flag buy signal bar for tomorrow. But, the rally will probably form a lower high and the Emini will likely continue down to around 2600.
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.
Al, today there were two failed breakouts. When you have a breakout that is immediately followed by a reversal, do those tend to be higher probability trades in the opposite direction? It seems that they should always be treated seriously rather than expecting a failed, failure of the reversal. Thanks,
That is a general rule, except in one case, a trading range. In a trading range, failed breakouts are common. A 2nd reversal has a higher probability of leading to a trend, especially if the reversal is strong. Here, it not get strong until bar 64. That is when the math changed.