Emini and Forex Trading Update:
Wednesday May 27, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini gapped above the 200 day moving average and the 3,000 Big Round Number yesterday. It sold off and closed back at the 200 day moving average. Since it closed near its low, it is a sell signal bar for today.
However, the March 3 high is an important magnet above. That was the start of the March collapse and its high is a magnet above. Therefore, a reversal down until the Emini gets there will probably be minor.
The Emini is now in the Sell Zone on the daily chart. That is between the 200 day moving average and the March 3 lower high. The bulls will probably not be able to get much above that high without 1st retracing about half of the 2 month rally. Therefore, the probability and risk/reward over the next month or two is beginning to favor the bears.
This week affects the monthly chart
This is the final week of May. May is the entry bar on the monthly chart for a High 1 bull flag.
So far, May is a big bull bar closing on its high. If the month closes like this, it would increase the chance of higher prices.
However, the bears expect a 10% selloff to begin soon. They will try to get May to end at 50 or more points below the high of the month. That would put a tail on this month’s candlestick and reduce the chance of much higher prices in June.
The fight for the remainder of the week will be over the appearance of May’s candlestick on the monthly chart. If the Emini is near the high of the month on Thursday or Friday, traders should be ready for a possible selloff into the end of the week on Friday.
Overnight Emini Globex trading
The Emini is up 31 points in the Globex session. It therefore might gap above yesterday’s high. It will gap far above yesterday’s close on the 5 minute chart. Also, it will reverse yesterday’s late selloff. Day traders will therefore expect a measured move up today or tomorrow based on that failed bear breakout.
When there is a big gap up above yesterday’s close, the Emini is far above the 20 bar EMA. That is a reasonable estimate of the average price.
Traders do not want to pay far above average unless the price action is far above average. The bulls want to see several big bull bars closing near their highs on the open.
That is not what typically happens. Instead, the Emini usually enters a trading range for an hour or two. The bulls will look to buy either a double bottom or a wedge bull flag near the EMA.
Since the bears want the gap up to fail, they want a sell pattern. They will look for a double top or a wedge rally to sell for a swing down.
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 today is breaking above the top of a 2 month trading range. That is also the neckline of a head and shoulders bottom. The bulls want a measured move up and then a test of the March high.
In general, if there is a close above the neckline, there is a 50% chance of a swing up and a 50% chance of a failed breakout and a reversal down. If the close is far above, the odds improve for the bulls. Furthermore, if the bulls get consecutive closes above, the math is even better. Finally, if they get consecutive big bull bars closing on their highs and above the trading range, there will be a 60% chance of a measured move up.
At the moment, the bulls have none of that. But they might get all of it over the next few days. Therefore, what happens over the next several days can change the expectation of traders for the next month or more.
The bears want a bear bar closing near its low at some point this week. If they get it, traders will conclude that the breakout is failing. They then will look for a reversal down to the middle or bottom of the 2 month trading range.
There are 3 trading days left to May. I talked about the ioi (inside-outside-inside) Breakout Mode pattern on the monthly chart over the weekend. The bulls want the month to close on its high, whether or not it goes above the April high and triggers the buy signal. If it closes on its high, traders will see May as also a buy signal bar for June.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market rallied overnight to just above the May 1 high. It then pulled back below that high. This is not how the strongest breakouts behave. It is a reminder that the daily chart has been in a trading range for 2 months and most breakout attempts fail.
Today’s close is important. The bulls will buy pullbacks because they want today to close above the top of the trading range on the daily chart. That would increase the chance of higher prices tomorrow. They want tomorrow to close even higher.
The bears always want the opposite. They will sell at the May high and at today’s high and try to get the breakout to fail. They then want today or tomorrow to have a bear body and close near its low. That would increase the chance of a reversal down over the next couple weeks.
Can today be a big trend day up or down? It does not look like it. Instead, the day will probably close around yesterday’s high and be a small bull day, or it will close near the open and be a doji day.
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 again sold off strongly on the open today. It formed a double top with yesterday’s high. It then reversed up from below yesterday’s low to above yesterday’s high at the end of the day. Today was an outside up day after a very strong early selloff. This increases the chance of higher prices tomorrow.
The Emini is now in the Sell Zone, which is above the 200 day moving average and the March 3 high. Since that high is a strong magnet, the Emini will probably get there. However, the math is becoming better for the bears on the daily chart.
Friday is the end of the month. The bulls want the month to close on its high. But the bears will try to put a 50 point tail on the top of May on the monthly chart. That will reduce the chance of much higher prices in June. Regardless of how the monthly chart closes, the Emini will have a difficult time getting much above the March 3 high.
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 – Is now a good time to build shorts for IWM and potentially SPY, now that we are in the sell zone? Did you go short?
I talked about this in the room this week. I am hoping that the S&P goes above 3,100 and gets closer to the March 3 high before I go short. I think the math is fine now, but there is enough momentum to make it likely that we will go at least a little higher.