Trading Update: Wednesday December 15, 2021
Emini pre-open market analysis
Emini daily chart
- Yesterday gapped down, creating a 5-day island top.
- However, it reversed up from a 50% retracement of the December rally, the 4600 Big Round Number, and a test of the bottom of last week’s gap up.
- Yesterday closed just above the open and is a High 1 buy signal bar for today.
- Because it was a doji bar with a prominent tail on top, it is not a strong buy signal bar.
- The 2-day selloff was an attempt to get the Emini back to around neutral ahead of today’s 11 am PT FOMC announcement.
- Traders are deciding if the Emini close of year will be at a new high. If so, January might gap up, creating a gap on the daily, weekly, monthly, and yearly charts.
- December triggered a monthly sell signal when it traded below the November low. If the year closes at a new high, it will be above the November high, which would erase the November sell signal.
- If December closes below the November low, especially if it closes on its low, January should trade down as well.
- Which will it be, a new high and higher prices in January, or a reversal down? While it might appear to be 50-50, in a bull trend, the probability is always at least slightly better for the bulls.
- There is a consensus that the Fed messed up by downplaying inflation. And the Fed knows it. Therefore, they will increase the rate of taper and they will raise interest rates sooner than what they have been saying. That is priced in. However, the market might sell off anytime, at least for a day or two, if the Fed says it in today’s statement.
- There are still a couple weeks left in December. Even if the Emini were to sell off for a couple more days, the bulls still would have enough time for the year to close at a new high.
- However, the bigger the selloff, the more likely January will continue down to the October low, which would be a 10% correction.
- The chart is not particularly clear. That means it is in a trading range.
- In a trading range, nothing is as clear as traders want. They will buy as the market goes down, sell as it goes up, and take quick profits. The result is a continuation of the range.
- At some point there will be a breakout up or down, and then another trend. But until there is a clear breakout, traders will continue to look for reversals.
- What about the 5-day island top that formed when yesterday gapped down?
- Island tops and bottoms are minor reversal patterns. That means they do not typically lead to trends, although trends rarely do begin with island tops or bottoms.
- While the 2-day selloff was strong, last week’s rally was stronger. Yesterday’s low was an exact 50% pullback from the December rally.
- The bears hope that last week’s rally was a buy vacuum test of the November high. They want the 2-day reversal down (from the lower high double top with the November high) to grow into a bear trend.
- It probably won’t. Remember, when a market is in a trading range, it tends to reverse, especially once it looks particularly bullish or bearish.
- One other difficulty in a trading range is that if a leg grows into a trend, the trend is usually not clear until it is about half over. That means that a clear trend usually will not last much longer before becoming unclear again.
- Until things are clear, the odds favor reversals every few days.
- Also, if there is a big move from here to the end of the year, up is still slightly more likely. Even though 4800 is far above, it is still within reach.
Emini 5-minute chart and what to expect today
- Emini is up 1 point in the overnight Globex session, which has been in a tight trading range around yesterday’s close. So far it is a continuation of yesterday’s neutrality (a doji bar at a 50% retracement of the December rally).
- While the Emini will probably begin as neutral today, it can always trend in either direction ahead of today’s FOMC announcement at 11 am PT.
- Day traders will trade like any other day ahead of the announcement.
- They should exit day trades ahead of the report.
- In the 1st few minutes after the FOMC announcement, the market typically makes a quick move in both directions. It is therefore better to not day trade again until at least 10 minutes after the announcement.
- After the announcement, be ready for anything, which means a strong trend in either direction, a reversal, or a trading range.
Yesterday’s Emini setups
EURUSD Forex market trading strategies
EURUSD Forex daily chart
- The EURUSD has been in a trading range for a month. Traders have been looking for reversals every few days.
- There is an FOMC announcement today at 11 am PT. Day traders should exit positions ahead of the report and not resume trading for at least 10 minutes afterwards. This is because there is often a sharp move in both directions in the first few minutes following the announcement.
- Yesterday was a small outside down day and it closed near its low.
- Today so far is a small inside day.
- It is the 13th day in a tight trading range and in the middle of the trading range that began on November 17. That makes it less bearish.
- The EURUSD is waiting for something before deciding on the direction of the breakout.
- That something could be today’s 11 am PT FOMC announcement.
- It could also be waiting for the 1st of the year. Currencies have an increased chance of reversing in early January. The current bear trend began on January 7 of this year.
- Since the EURUSD is in the middle of a 7-year trading range, traders should expect reversals.
- The current selloff is a bear trend on the daily chart. But it still might be just a pullback from the 2020 rally on the monthly chart.
- While the month-long trading range is a Breakout Mode pattern, the bear case is different from the bull case.
- The bulls expect a trend lasting several months if they get a successful bull breakout.
- For the bears, the trading range is coming late in a bear trend. If there is a bear breakout, the trading range will likely be the Final Bear Flag. That means that the breakout will probably reverse up into a bull trend within a couple weeks of a bear breakout.
- Therefore, traders should expect a rally lasting at least a couple of months whether or not there is one more brief leg down.
- What happens if there are consecutive big bear bar closing far below the trading range? While that is unlikely, it would increase the chance that this year’s selloff will continue down to last year’s low without 1st having a 2-month rally.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
- Today sold off in a Spike and Channel Bear Trend.
- It reversed up from a wedge bottom and entered a tight trading range ahead of the FOMC announcement at 11 am PT.
- The 1st bar after the announcement made a new low of the day and then a new high. It closed on its high and with the 2 following bull bars created a Major Bull Surprise.
- Traders bought a 50% pullback to the EMA.
- The rally stalled at the earlier high, but the bulls then broke above the double top.
- The rally ended at a measured move up.
- The bears want a reversal down from today’s wedge rally.
- Today closed near its high in a bull trend with bulls wanting the year to close on the high. This increases the chance of a gap up tomorrow.
- I have been saying that the bulls have maybe a 50% chance of the year ending on its high, above the November high and above 4,800. Today further increases the chance.
- If there is follow-through buying tomorrow, that would also increase the chance of a new high in December.
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 Time
When I mention time, it is USA Pacific Time. The Emini day session charts begin at 6:30 am PT and end at 1:15 pm PT which is 15 minutes after the NYSE closes. You can read background information on the market reports on the Market Update page.
Thanks for the report. Now that the FOMC announcement pushed prices further higher, is it right to assume the monthly MM that is based upon October low & August – September double top is still intact? October body gap is still present despite November reversal attempt.
I think most computers are ignoring the August/September double top. They saw the December selloff as a breakout test of the September high. That means the high is important. The October low is clearly important. That means a measured move based on both is important. That measured move is at 4795.25, which is near the 4800 Big Round Number.
As you mentioned mostly markets are in range and soon strong trend bull/bear within a range or after breaking out reverse.
I take swing trades with signals on 1hr chart but for the past few weeks as the market is sideways I cannot valid setups.
If I get one it soon reverses into TTR or counter-trend.
As an individual trader, we can wait for setups but will the institutions also be on the sidelines until they get some clarity?
The market is 95% institutions. Every bar is created by institutions. They trade 24/7. Some use algorithms that trade the 60 min chart, and those will wait for setups.
thanks for the reply sir.
I’d just like to point out something that I learned from you (just like everything as a matter of fact) that the MM from yesterday seems like it was from the high of the day to the open and when a rally stops at a MM based on the open, then the open is also important and a magnet later in the day. That often leads to a test of the open late in the day, which happened yesterday. Is it a correct interpretation?
Yes, that is a common thing. I always pay attention when the market shows it thinks a price is important.