Emini and Forex Trading Update:
Thursday January 14, 2021
I will update again at the end of the day.
Pre-Open market analysis
The Emini triggered a High 1 buy signal yesterday by going above Tuesday’s high. But Tuesday was a doji bar and that is a weak buy signal bar. Yesterday barely closed above the buy signal bar high.
The bulls want the rally to test Friday’s high and close. That would allow those Buy The Close bulls from Friday to exit without a loss. If enough exit, it could create a double top and begin a correction down.
Unless the Emini breaks strongly above last week’s high, traders should still expect a reversal down to 3500 to begin this month. However, the bears need a good sell signal bar, or a surprisingly big reversal down before traders will conclude that the profit taking is underway. Until then, traders will continue to expect higher prices.
Yesterday was the 7th consecutive day without a bear body. That is unusual and therefore unsustainable. This streak is therefore a type of buy climax. It increases the chance of a bear day today. If today is within about 10 points of today’s open in the final hour, it could get drawn there by the end of the day.
What about impeachment, with the buy climax ignoring impeachment? The market already factored that in, and it does not care. But if there is unacceptable violence within the next couple weeks, it could be the catalyst for a pullback to 3500. In the meantime, traders continue to buy, knowing that a buy climax can go a long way before there is a reversal down.
Overnight Emini Globex trading
The Emini is up 4 points in the Globex session. It will therefore open in the middle of its 5-day trading range. That increases the chance of more trading range trading today. However, today will probably have a bear body. Consequently, if there is a rally for several hours, traders will look for a midday reversal back down to below the open.
Suppose today sells off on the open. After 7 days without a bear body, day traders will look for a reversal back up to the open later in the day. However, since today will probably close below the open, if it is above the open late in the day, day traders will look for a reversal back down to the open.
What about a strong trend day up or down? That can happen at any time, but markets have inertia. That means they tend to continue to do what they’ve been doing. After going sideways for 5 days and opening in the middle of the range, it is more likely that today will be another mostly sideways day.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart has sold off from the January wedge top with 5 bear days. It is now near the bottom of the 2-month trading range. The bears want 2 closes below the January low. If they get that, they will look for a bear trend down to the November 4 low.
The bulls hope that this will be like every other strong selloff since March. They want it to form a higher low, and for the bull trend to resume, like it did after the late October selloff.
What is different now is that there is a wedge rally on the weekly chart and the EURUSD is near the resistance of the February 2018 high on the monthly chart. This increases the chance of a test down to the November low over the next couple months.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market was sideways for most of the overnight session, but it broke strongly to the downside over the past 3 hours. When there is a break below a trading range that lasts several hours, the breakout usually is relatively brief, and then the EURUSD goes sideways again.
That is a Bear Trending Trading Range Day. The bears want the day to accelerate down, and the bulls want it to reverse back up to the initial trading range. But the most common outcome is two or three quick legs down in a sell climax, and then exhaustion followed by another trading range.
When the EURUSD is in a strong bear breakout, as it is at the moment, day traders are only selling. But if there is a 30-pip bounce, which is likely within a couple hours, they will begin to bet on a trading range. The bulls will look to buy reversals back up from new legs down, betting on a trading range. There is a 20% chance that a reversal up will continue back up to the high of the day. The bears will switch to selling rallies instead of selling at the market.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
The Emini rallied for an hour on the open, but then reversed down in a bear channel from a wedge top. The bull tried to get a midday reversal, but it became a bull trap and the bear channel resumed.
Today was an outside down day and the 1st bear bar on the daily chart in 8 days. It is a sell signal bar for tomorrow on the daily chart for a failed breakout above the 2-month bull channel.
Normally, a sell signal after 8 bull days would be minor. However, because of the buy climaxes on the daily, weekly, and monthly charts, the bears have a higher probability of a swing down to at least 3500.
Most reversal attempts fail, but I have been saying that a reversal was likely after January 6, and we are now in that window. If the bears can form consecutive big bear bars on the daily chart, traders will conclude that the correction is underway. Otherwise, they will assume that the Small Pullback Bull Trend will continue at least a little longer.
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.