Emini and Forex Trading Update:
Wednesday September 2, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini yesterday broke above the September high. The rally was in a weak bull channel, but the day closed near the high. That increases the chance of a gap up today.
The daily chart is late in a Small Pullback Bull Trend. That type of trend sometimes accelerates upward into a blow-off top. This rally has that potential.
After the streaks of 9 and then 7 consecutive bull bars on the daily chart, traders should expect a 10% correction to begin in September. How much higher can the Emini go? Buy climaxes can go extremely far before the bulls begin to take profits. Until there is a strong reversal down, traders will continue to buy every selloff on the 5 minute chart, and they will buy the 1st pullback on the daily chart.
There is now a 9 bar bull micro channel on the daily chart. The bulls typically buy the 1st pullback. Therefore, there is not much downside risk over the next couple days. The bears will probably need at least a micro double top before they will be able to get a reversal down that will last more than 2 – 3 days.
Since the past 4 days have had a lot of trading range price action, traders will expect that to continue today. There have been legs up and down that were big enough for swing traders. Traders will expect that again today.
Overnight Emini Globex trading
The Emini is up 20 points in the Globex session. There will probably be a big gap up. About 20% of the time, there will be either a bull or bear trend from the open. This typically begins with a series of trend bars.
It is important to understand that a trading range open is more common. Traders do not like to pay far above the average price. This usually limits the size of a rally when there is a big gap up. The market typically enters a trading range until it gets near the EMA, which is rising sharply.
The trading range usually will have either a double top or a wedge top. The bears will short it, expecting a selloff down to at least to the EMA. Once the emini gets near the EMA, the bulls will look to buy either a double bottom or wedge bottom.
If there is a trading range open and then a trend up or down, the trend usually does not last all day. Traders will look for either a midday trading range of a reversal.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart has been stuck in a trading range at the resistance of the September 2018 high. That was the start of the 18 month bear channel.
What typically happens after a break above a bear channel is that the rally tests the start of the channel and then there is a selloff. At that point, the bear channel will have evolved into a trading range. This is still the most likely outcome here, despite the unusually strong summer rally.
Most wedge tops have 3 reversals. This one now has 4. August was a trading range that was tilted up a little.
The EURUSD has been in a bull channel for 5 weeks as well as a trading range. A bull channel is also a wedge top. If the bulls get consecutive closes above the range, they will expect a rally up to the February 2018 high of 1.25.
It is still slightly more likely that there will be a bear breakout of the trading range and then a test of the breakout points. These are the March 9 and June 10 highs.
Trading ranges can last a long time. Until there is a breakout, there is no breakout. Traders will look for reversals every few days. Also, the probability of a successful bear breakout is about the same as for a bull breakout. A trading range is a Breakout Mode pattern, even in a bull trend.
Overnight EURUSD Forex trading
Yesterday was a sell signal bar for a wedge top on the daily chart. The EURUSD triggered the sell signal overnight by breaking below yesterday’s low.
The 5 minute chart formed a trading range around yesterday’s low and then broke to the downside. It then quickly entered a 2nd trading range.
This is a Trending Trading Range pattern and is a weak bear trend. It has been sideways for 6 hours in a 35 pip range.
Since it is in a trading range, day traders are trading reversals for 10 pip scalps. The bulls want a reversal back up to above yesterday’s low. They hope that today will be a High 1 buy signal bar on the daily chart.
The bears are happy with the EURUSD staying in the lower range. Today would then be a bear entry bar on the daily chart, which would increase the chance of at least slightly lower prices tomorrow.
While they would like another leg down today, that is not necessary. This week is already a good sell signal bar on the weekly chart. All the bears need to do is prevent a reversal up.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
After gapping up, the Emini entered a trading range for a couple hours, as it often does. It then rallied strongly from a double bottom and formed a strong Small Pullback Bull Trend.
Today is the 10th consecutive day without a pullback on the daily chart. While the buy climax is extreme, there is no top yet. Traders continue to expect higher prices.
However, they are aware that an extreme buy climax typically has a big profit taking selloff. There could be a 10% correction starting by the end of the month.
The next target it the 3704.50 measured move target from the March low to the April 29 high. There were 2 pullbacks in June that stayed above that high. The space between is now a good candidate for a measuring gap.
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
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.
From your experience trading any market, might you be able to quantify in percentages:
• Percent of time a bull streak (climax) is erased. Is bull streak the same as a bull micro channel?
• Percent of time extreme buy climaxes never enter a correction. Correction defined as 10% or greater.
Is there any type of correlation between length of time an extreme climax continues and the probability of a correction occurring?
Thank you always, for your time commitment and passion for teaching.
The market cycle is a breakout, a channel, a trading range, and then another breakout in either direction.
There is a parabolic wedge on the weekly chart. A wedge is a bull channel.
My general rule is that a breakout above a bull channel fails 75% of the time. That means that there is probably not too much left to the 5 month rally and the 2 week breakout. There should soon be a reversal to below the bull trend line and a couple legs sideways to down on the weekly chart to the low of last week. That is the bottom of the 2 week breakout and it is around 3400. It should then form at least a brief trading range. Then, traders will look for a breakout up or down and then a new trend.
But 25% of the time, it begins the market cycle over again. It goes up for a lot of bars, has a pullback, and then enters a bull channel.
Right now, there are consecutive big bull bars on the weekly chart. Another rule that I have is that there is a 60% chance that this is an exhaustive move. There is also a 60% chance of a 1 – 2 bar (week) pullback and then a brief 2nd leg up before the bulls become exhausted and take profits, resulting in a trading range.
You have mentioned that there is a good candidate for a measured move to 3700. What is the percentage of going up straight to 3700 without a pullback to 3400?
Buy climax, but no top yet… 50-50.
Hi Al and team, I found myself (regretfully) hesitant to buy in the bull trend today because of how over bought I feel the market is. I was concerned that if the market fell too quickly, a gap down would not trigger my stop as planned and could wipe out too much $. Is that a valid concern or too paranoid? I keep thinking we are at a top but it never comes. I may have a bearish bias. Also wondering how we should think about resistance when we are at ATHs? I see the expanding triangles and wedges and I am wondering if that is what plays the role of resistance at an ATH?
Think like Forrest Gump. It’s going up so you have to buy. Yes, everyone knows that there will be a dramatically fast and big selloff that will probably start this month. However, as long as it is still in the buy climax phase, everyone is buying.
And this type of buying is the reason why the selloff will probably be fast and deep. Anyone buying now is not putting a protective stop below the June 29 low. Instead, traders will be quick to get out, like below a bear bar closing near its low, or 10 – 20 points below any bar, including a bull bar. Once the Emini starts to go down, it will trigger many stops, which will make it go down more and trigger many more stops. The cascade down through the stops can be very fast.
Everyone knows it, and everyone is buying and using tight stops. They buy because it can go a long way up before the insane profit taking begins.
As long as a trader has a reasonable plan to exit, he can buy. If he does not like buying at the top of a buy climax or exiting in a panic as it crashes down, that’s okay. He can just wait for price action that matches his personality.
Trading has to be profitable and fun. If the market is behaving in a way that is not fun, just wait.
Could the e-mini (weekly chart) be consider a bear flag with a pull back beyond the original high in Feb?
That is always possible, but the shape is not good for that. When that is the case, we would not be getting this relentless parabolic rally. What usually happens is that the new high is brief and then there is a strong reversal down.
Here, the breakout and the 5 month rally are either forming a strong leg in a 3 year trading range or a resumption of the bull trend that ended in early 2018.