Emini and Forex Trading Update:
Tuesday December 3, 2019
I will update again at the end of the day.
Pre-Open market analysis
The Emini sold off yesterday on the open. It formed a big bear bar on the daily chart. Even though there was a tail below, it broke below the 2 month bull trend line.
Furthermore, the bar was a surprise. A Bear Surprise Bar typically will have a 2nd leg sideways to down. But when it comes in a strong bull trend, there is often a rally to a lower high 1st. The rally can last 5 – 10 bars and be strong. However, traders should still expect a 2nd leg down.
Since every bear bar for 2 months had bad follow-through, today is particularly important. Has the market changed its behavior? If today is a 2nd consecutive bear day, especially a big bear day closing on its low, traders will start to conclude that the Emini will pull back for a couple weeks.
I said throughout November that a 2 week pullback of 50 – 100 points was likely to begin in November. It might have begun last week.
Traders must remember that a strong reversal down will still typically be minor when the bull trend is as strong as this one has been.
This week fell below last week’s low. It is now the 1st pullback in 9 weeks on the weekly chart. The bulls have been so aggressive that they were not waiting to buy pullbacks on the weekly chart. They now finally have the opportunity, and many will take it. Consequently, this pullback will probably just last a week or two. Traders should then expect a new high.
Overnight Emini Globex trading
The Emini is down 23 points in the Globex session. It will therefore open below yesterday’s low. A gap down will form an island top with last week’s gap up. But most island tops and bottoms are minor reversal setups and are no more important than any other reversal pattern.
A big gap down increases the chance of a trend day. If there is a trend, a bear trend is more likely.
Where there is a big gap down, the Emini is far below the EMA. Many bears do not want to sell too far below the average price. That reduces the chance of a big bear trend of the open. They prefer to wait for the Emini to go sideways to up until it gets closer to the EMA. They then look to sell a reversal down from a double top or a wedge rally near the EMA.
However, the gap down also means that traders see the price as having been too high. They therefore usually will sell the 1st rally. This increases the chance of a trading range open for the 1st 1 – 2 hours. In addition, early trading range trading reduces the chance of a big trend and it increases the chance of more trading range trading later in the day. Consequently, most big gap opens do not lead to the strongest trends.
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. 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.
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.
EURUSD Forex market trading strategies
The daily chart of the EURUSD Forex market formed a big bull bar yesterday. After the strong reversal up from the October nested wedge bottom, traders know that a 2nd leg sideways to up is likely.
The bulls hope that yesterday was the start of a reversal up from a head and shoulders bottom. In general, a major trend reversal has a 40% chance of actually leading to a reversal of the trend. More often, the rally ends up as just a bull leg in the trading range.
If the bulls get 2 closes above the November 21 high, the rally will probably continue up to the October high and the 14 month bear trend line. That would also be a test of the 1.12 Big Round Number. Two closes above that resistance would then increase the odds of a bull trend on the daily chart, which could last 2 – 3 months.
If, however, the EURUSD reverses down, especially from a micro double top, traders will conclude that yesterday’s rally was just like all of the others over the past 2 years. They would then expect an eventual break below the October low.
At the moment, yesterday was strong enough to make a test of the October high likely. But if the EURUSD continues to stall here and if it forms a micro double top over the next few days, traders will look for a test back down.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market has been in a 20 pip range overnight. This is bad follow-through for the bulls. A bull trend usually has 2 – 3 consecutive bull trend bars at a time. If today does not close above the November 21 high, traders will suspect that yesterday was simply a test of the top of the 4 week trading range.
So far, day traders are scalping. With yesterday being a bull Surprise Bar, today will probably not be a big bear trend day. There is still a chance of a bull trend, but after this much sideways trading overnight, that is unlikely. Today will probably remain a trading range 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. 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.
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.
End of day summary
The Emini opened with a big gap down and sold off initially. It then rallied in a broad bull channel for the rest of the day. Today is now a buy signal bar for tomorrow for a 2 day bear trap. A gap up tomorrow will create an island bottom. Today’s gap down formed a 5 day island top.
The selloff was strong enough so that a trading range is more likely over the next week. But the bull trend on the daily and weekly charts are strong. Remember, I have been saying for the past month that the buy climax would probably result in a 50 – 100 point pullback that would begin by the end of November. Also, I said it would probably last only a week or two. The pullback began on November 27 and it has fallen about 85 points. It therefore has met my minimum objective.
The selloff is strong enough so that the bulls will probably need at least a micro double bottom. That means traders should expect at least a small 2nd leg sideways to down within a week.
But the 2 month rally was strong. Therefore, this 2 day selloff might be a bear trap and the end of the selling. That increases the chance of a strong reversal back up this week.
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, do you try and stc B50 for scalp after B51 disappointment (since 3 push up)? Or is bull channel too tight here?
Thanks
The context was good, but the 1st bear bar was not good enough. I thought the math was ok, looking for a pullback to around the apex of the triangle. If I were to sell with a stop, I would sell below the bar closing near its low. I mentioned in the room that there was a lot of trading range trading and therefore there would probably be a pullback to below the breakout point. That means a magnet below.