Emini and Forex Trading Update:
Friday August 28, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini formed a doji bar yesterday. Since Wednesday was a big bull day in a buy climax on the daily chart, yesterday’s pause could be the start of some profit taking. The buy climax is extreme and many bulls will want to reduce their risk. The easiest way is to reduce the size of their positions.
This increases the chance of a sideways to down day today. However, with the bull trend on the daily chart as strong as it has been, traders will be eager to buy the 1st 1 – 2 day pullback.
Also, the stock market is in a seasonally bullish window from late August through Labor Day. Therefore, if the bears are going to get their 10% pullback, it might not start until after Labor Day.
Today is Friday and weekly support and resistance can be important, especially in the final hour. The bulls want a weekly close above the 3500 Big Round Number. The best the bears can probably do is get a close around the middle of the week’s range. And the odds are against it.
Overnight Emini Globex trading
The Emini broke above the 3500 Big Round Number in the Globex session but then entered a trading range. It reversed down and has been in a trading range just below 3500 for 6 hours. The 6 day rally is probably a buy vacuum test of 3500.
The bulls will probably test above 3500 in the day session today. But will they create a big breakout to far above that psychological resistance? With the buy climax as extreme as it has been over the past 6 days, many bulls will soon take profits.
Also, yesterday was a doji bar on the daily chart. That is a sign of some profit taking. This makes a big bull day today unlikely. Additionally, after 6 bull bodies on the daily chart, there is an increased chance of today closing below the open and forming a bear body. This is particularly true with yesterday having only a 1 tick bull body.
But the buy climax means that the bulls are strong. That reduces the chance of a big bear day today. So if today will probably not be either a big bull or bear day, what will traders expect? A lot of trading range trading, like yesterday.
Possible end of the month minor profit taking
There are only 2 trading days left in August. August so far is a big bull bar trading at its high on the monthly chart. Most bars on the monthly chart do not close on the high of the bar. There is usually some profit taking at the end of the month, creating a conspicuous tail on the top of the bar. That means there is an increased chance of the month closing at least 20 points down from the high, like it did in April and May.
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 has a big bull bar that is trading at the high of the day. Furthermore, it is a little above yesterday’s high.
If today closes above yesterday’s high, then today would be a breakout bar. Traders would conclude that the bulls are resuming their trend. But they need follow-through buying on Monday.
The ideal case for the bulls is for today to close on the high of the day and 20 or more pips above yesterday’s high. That would increase the chance that the bull trend is resuming.
However, if today closes below yesterday’s high or only a few pips above, traders will wonder if today is just a one day event in the month-long trading range.
Monday is important. The bar after a breakout is the follow-through bar. If it has even a tiny bull body, it would increase the chance of higher prices. The bulls want a consecutive big bull bar closing on its high. That would significantly increase the chance of a breakout above the August range. Traders would then look for a 200 pip measured move up.
If Monday is a bear bar closing on its low, traders will conclude that the breakout failed. They will then wonder if the EURUSD will quickly break below the bottom of the range and fall for a 200 pip measured move down.
The fight today will be over the close. So far, the breakout has been small. The bulls need more. If they do not get it, traders will conclude that the overnight rally is just a small leg in the August trading range.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market rallied early overnight to above yesterday’s high. However, the breakout was small and the EURUSD has been in a 35 pip tall trading range since then. Day traders have switched to scalping reversals up and down for 10 pips.
Day traders are focused on yesterday’s high. The bulls hope for a break above the 5 hour trading range and a 35 pip measured move up to far above yesterday’s high. While possible, that is unlikely. When a market rallies to a key price and stalls, it tends to stay there for the remainder of the session. That tendency also reduces the chance of a big reversal down.
There are many hours left in the session. Day traders are hoping for a strong buy or sell setup that could lead to a 35 pip measured move above or below the trading range. However, they know the rest of the day is more likely going to be sideways and the day will probably close just a little above or below yesterday’s high.
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
Today was a trading range day until the final 2 hours. It was also a weak bull channel from the 2nd hour. It rallied to above the 3500 Big Round Number for the 1st time.
There are now 7 consecutive bull bars on the daily chart. This is extreme and therefore a buy climax. But after an 8 bar bull micro channel and a 2 month Small Pullback Bull Trend, traders will buy the 1st 1 – 3 day pullback.
The week before Labor Day tends to be bullish. That further reduces the chance of a big selloff next week.
It is important to remember that 5 of the past weeks gapped up on the weekly chart. With this week closing near its high, there is an increased chance of a gap up again next 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.
Wow what a run! Does a 2nd climatic bull leg like this change your thoughts on a 3200 pullback? Meaning, if there is a pullback can we only count on a pullback to the beginning of this 2 climatic bull run, instead of 3200? Thanks Al!
I wrote about this in tomorrow’s report. The short answer is that I think there will be a pullback to 3,000 – 3,200 in September, but that it will be a buy. Also, there might be a sharp acceleration up over the next week before there is any reversal. Next week might gap up, and September might gap up as well, like August.