Emini and Forex Trading Update:
Thursday January 7, 2021
I will update again at the end of the day.
Pre-Open market analysis
After Monday triggered the yearly buy signal by going above last year’s high (an outside up candlestick), it immediately reversed down. This often happens with higher time frame signals. When a buy signal bar is big, many bulls do not want to risk to below the bottom of the buy signal bar. Therefore, there is a relative lack of buyers above the buy signal bar, and the chart often quickly reverses down after triggering the buy signal. However, the bulls who did not buy often buy a sharp selloff, like they did yesterday.
Half of the time, the Emini rallies again and triggers the signal a 2nd time, which it did yesterday. Yesterday also triggered the OO (outside-outside) buy signal on the daily chart. But an OO late in a bull trend frequently becomes the Final Bull Flag. There is an increased chance of a reversal down within about 5 days.
Yesterday’s Emini climactic test rally was extremely strong, but there was a late reversal down. The bears are hoping that yesterday formed a double top with Monday’s high. It is important to note that the 2nd leg up in a double top is sometimes an extreme buy climax, like yesterday. However, the selloff was weak and it is more likely a bull flag.
As I have been discussing over the past month, there are issues with the daily, weekly, and monthly charts that make a pullback to 3500 likely to begin this month. Therefore, the Emini will probably not go much higher before pulling back. It sometimes will go sideways for many days at a key price, before breaking out in either direction. That might happen here.
Overnight Emini Globex trading
The Emini is up 20 points in the Globex session. The bulls hope that yesterday’s late selloff was just a bull flag.
Today will gap above the top of yesterday’s bear channel. The bulls want the rally to resume and for the Emini to close at the high of the week tomorrow.
At the moment, it is going sideways around the high and close of last year, and the open of the week.
This might continue through the end of the week. Because yesterday’s reversal up was so strong, there is an increased chance of trend resumption up today. However, because the Emini might be stuck at those magnets, it is slightly more likely that the week will end around here when it closes tomorrow.
So far the week is a big outside doji bar on the weekly chart. That is neutral and it increases the chance of the sideways trading continuing through tomorrow. However, the swings up and down have been big. Day traders will expect at least one leg up and one leg down again to day, like over the past several days.
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. 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 been in a bull trend since November 4. Today reversed down after 3 bull days. Most reversal attempts in bull trends fail, and become pullbacks (bull flags), and therefore that is what is likely here.
However, when a bull trend begins to have lots of big bear bears, the odds are that the channel will soon have a bear breakout. Most bull channels have a break below the bull trend line and then the bull trend converts into a trading range. That is likely here. However, most attempts to end a bull trend fail.
Today is the 5th attempt since December 4. Traders should expect the bull channel to be followed by a 2-week swing down soon. However, until there is a clear top or a sustained reversal down, traders will keep buying 2- to 3- selloffs, knowing that most reversal attempts fail.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market reversed down strongly overnight from near yesterday’s high, to below yesterday’s low. But yesterday was the 3rd consecutive bull day in a bull channel. There probably will be buyers around yesterday’s low. Therefore, even though day traders have only been selling overnight, the bears might soon begin to take profits, fearful that the bulls will buy around yesterday’s low.
The EURUSD has bounced 30-pips over the past 2 hours. Traders know that the 1st leg up after a strong selloff is minor. It typically becomes a bear flag or a leg in a developing trading range. However, it is enough buying for bull traders to look to buy a reversal up from a test down to the low.
Can this 1st leg up continue to reverse the selloff, become a bull trend, and create a V-bottom? That happens 30% of the time. It is more likely that there will be test down and an evolution into a trading range.
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. 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 rallied in a strong bull trend from the open and then entered a trading range. It again made a new all-time high. There is a measured move target at 3807.50, based on the rally from Monday’s low to Tuesday’s high. However, it is a minor target since most computers will not see it.
Tomorrow is Friday so weekly support and resistance can be important, especially in the final hour. The key prices are this week’s open, last year’s close and high, the 3800 Big Round Number, and last week’s high.
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.
Hi Al, 70 % of the time the market is trending up thats why profits are “fat tailed.
23 % of the time the market is in cyclic mode. Why are you spending 70% of the time describing the bear case?
BR.
Kent
It is important to look at this in terms of objectives (trader versus investor) and time frames. I keep saying the odds favor higher prices on the daily, weekly, and monthly charts, and I have said countless times that the yearly chart is always in a bull trend. However, on the daily and weekly charts, there is always a bear case. A person who is long cannot ignore it unless he is an investor and willing to hold through corrections and even bear markets.
I am a trader, and a trader always looks for trades in both directions. I day trade every day, and there are as many swings up as down on the 5 minute chart. It is not 70% bullish.
I also take 1 – 5 day trades on the daily chart. In any 5 day period, there is a 56% chance the market will be up and a 44% chance it will be down. In average month, 45% of days are down, not 30%. But on a monthly chart, you are right about 70% of months being up. On the yearly chart, it is even more bullish.