Emini and Forex Trading Update:
Monday December 21, 2020
I will update again at the end of the day.
Pre-Open market analysis
The bulls want the Emini to finish the year at an all-time high. The Emini made a new all-time high on Friday, but then became an outside down bar.
The bears hope that the overnight selloff will lead to a gap down. Remember, I have been saying that the Emini would probably begin a 10% selloff by early January. If today gaps down and closes near its low, traders will begin to believe that this could be the start of the selloff. The bulls hope it is just another 1- to 3-day pullback in its 5-week Small Pullback Bull Trend.
On the Globex chart, there was another all-time high overnight and then today became a 2nd consecutive outside bar. Consecutive outside bars is an OO (outside-outside) Breakout Mode pattern. If tomorrow trades above today’s high, traders will look for a measured move up based on today’s 100-point range. If tomorrow or any day in the next few days trades below today’s low, they will look for a 100-point drop below over the next few days.
Tesla could be a bellwether
Tesla was added to the S&P500 before the open today. It is extremely overbought. Just before the close on Friday, institutions with funds that track the S&P were forced to buy it. The firms that bought it over the past month have quick, big profits. They might take those profits today. If there is a strong reversal down this week, Tesla might be putting in its high for the next several years.
Since Tesla is a $600 billion stock, it could be a bellwether for the market. If it starts to sell off, traders might take profits on all of their positions going into the end of the year.
Can the opposite happen? Can the Emini race up from here? Pretty much anything has a 30% chance. This is an example. It is more likely that the Emini will begin to pullback either this week, or within the next few weeks.
Overnight Emini Globex trading
The Emini is down 60 points in the Globex session and it will probably gap down. However, it rallied 50 points up from the Globex low. Big Down, Big Up creates Big Confusion. Confusion typically results in a trading range, and the Emini has been in a 20-point range for the past 3 hours in the Globex session. This increases the chance that today will have some trading range trading. That means at least one swing up and one swing down.
Today will also likely gap to below the bottom of the 5-week bull channel. I have been saying that a bull channel is a bear flag. I wrote that markets usually break below bull channels, and evolve into trading ranges. This could be the start. A common target for the bottom of the range is the beginning of the bull channel. That was the November 10 low at around 3500.
The more today closes below its midpoint and the more bear bars over the next week, the more traders will expect a pullback to below 3500. But if today closes above the midpoint, traders will expect more sideways trading. If they the get a bull bar closing near its high this week, the bulls will hope that the selloff will be a bull flag and that the year will close on the high.
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. 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 a wedge bull channel. Friday was a bear bar and therefore a sell signal bar. But it only had a small bear body and it followed two big bull bars. That is a weak sell setup. If this is the start of a 3-week pullback to the November 9 high Breakout Point, the bears will need several bear bars closing near their lows.
So far, today is trading above the midpoint of the day’s range. That, plus the weak sell signal bar in a strong bull trend, makes today more likely just the start of a 3-day bull flag, than the beginning of a bear trend. Today’s close and what the EURUSD does over the next few days will tell traders if this is instead going to lead to a 3-week selloff.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market sold off sharply at the start of the European session, but has reversed back up almost to the start of that selloff. With several overnight reversals, day traders are trading in both directions and taking quick profits. The reversals make them hesitant to hold onto their positions. The legs up and down so far have been big enough for 40- to 50-pip trades.
However, since this is probably evolving into a trading range, the legs will get smaller and day traders will switch to taking 20-pip scalps. If the EURUSD becomes very quiet, they will scalp for just 10 pips.
Can today trend strongly up or down before the end of the day? With several reversals, traders will expect more reversals. The fight will be over the close of the day.
The bears want the day to close below its midpoint. That will increase the chance of lower prices tomorrow. But if there is a prominent tail below on the daily chart, traders will expect only sideways to down trading tomorrow.
If the EURUSD closes near the high of the day, today would be a credible buy signal bar on the daily chart. However, since the day would have a big tail below, traders will see it as a less reliable buy signal. It would increase the chance that tomorrow would be either sideways or slightly up.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
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. 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 sold off strongly on the open to the bottom of the 3-week trading range, last week’s low, and the open of the month. It reversed up from both a wedge and parabolic wedge. The rally was a huge Small Pullback Bull Trend. Today is now a buy signal bar on the daily chart.
The bulls want the year to close on its high, which would increase the chance that January would gap up. That would create a gap on the daily, weekly, monthly, and yearly charts. However, the odds still favor a pullback to below 3500 starting by the 2nd week of January.
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.
How do you and when do you (specifically from which bar #) determine that ES 5-min is in small PB bull trend and trader needs to trade like small PB bull trend?
At the start of most weak trends, I start to use the term. However, I do not necessarily trade it like a Buy The Close market at that point. I want to see one or more bull bars closing on their higher, and I want the context to be supportive. Today, it became Buy The Close by 8:05 or 8:10 am PST.
Thank you, Al.
Over 2.5 million Tesla options traded Friday at an average Implied Volatility of 83% which was over three and a half times the Implied Volatility of the S&P 500 options.
As you know, I think what is going on with Tesla is important and interesting. I would not be surprised if it puts in the high for the next several years during the next couple months.
Since you’re discussing gap up in Jan, we had a gap up in 2013 and that gap was not filled. That is a gap up on daily, monthly and yearly as well. I need to reconfirm this but I am pretty sure it is.
We might be using different data. The was no gap up in January 2013 on my weekly or monthly continuous charts, and therefore there was no gap on the yearly chart. I did not look back over the past hundred years of the S&P and Dow indices, but I suspect there has never been yearly gap up on those either.