Emini and Forex Trading Update:
Thursday October 29, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini formed another big bear bar yesterday. It closed the gap above the September 25 high. The next target below is the September low, which is the bottom of the 3 month trading range and the neckline of the double top.
I have been saying for months that the Emini would probably have to test the middle of its 5-month rally before it could go much higher. This late October collapse might be the start of a test down to below 3000.
Because yesterday was climactic, there is an increased chance of at least a couple hours of sideways to up trading today. If the bulls get a 1 – 2-day rally, the bears will sell it, looking for at least a small 2nd leg sideways down after the surprisingly strong 3-day selloff.
This is all about the monthly chart
There are only 2 trading days left in October. October so far on the monthly chart is a bear inside bar after a bear outside bar. This is an ioi sell signal. If October remains an inside bar, November will probably trade below the October low to trigger the sell.
It is important to remember that the Emini is still in a 3-month trading range. This selloff might simply be a test of the bottom of the range. Yesterday’s low could simply be a measured move down from the October 12 high to the October 22 low, which was the bottom of a wedge bull flag.
It is important to note that the bulls have been strong for 7 months. They will try to prevent October from closing on its low. The open of the month is 100 points above yesterday’s close. That is probably too far for the bulls to get there by tomorrow’s close. But if they can get halfway there, October will be less bearish on the monthly chart. The 3-month trading range could then grow into a triangle over the next month.
However, the odds still favor lower prices over the next month or two because of the ioi in a buy climax at resistance on the monthly chart.
Overnight Emini Globex trading
The Emini is up 8 points in the Globex session. If it opens here, it will be in yesterday’s 5-hour trading range That would increase the chances of sideways to up trading today.
Also, after extreme selling for several days down to a measured move target, many bears will start to take profits. That would also increase the chance of sideways to up trading.
There is a small chance that this selloff is the start of a collapse, like in February. If today is another big bear day, especially if it breaks below the September low, the odds of a bear trend on the daily chart will increase.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart has sold off for 4 days. The bears hope this is the resumption of the bear trend that began with the September 1 high.
However, trading ranges have lots of strong legs up and down, and each is more likely to reverse than lead to a trend. That is true here. The bulls want a double bottom with the October 15 low. After 4 bear days, they will probably need at least a micro double bottom before they can get a leg up. That means traders expect at least a small 2nd leg sideways to down.
This is the 4th test of 1.17, and the September 25 low is a magnet below. Even if the EURUSD bounces for a day or two, traders expect a break below 1.17 and a test of the September low just above 1.16. The bulls will try to get a reversal up there, at the bottom of the range.
If the bears get a couple closes below1.17, the EURUSD will probably fall to 1.16. If they get a couple closes below the September low, the EURUSD will probably test down to the breakout point on the weekly chart at the March 9 high, just below 1.15.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market sold off again last night down to 1.17, which it tested 3 other times in the past 5 weeks. Since it has been support, it might stall here today.
The overnight selloff was a Bear Spike and Parabolic Wedge Bear Channel. That is a sell climax pattern and it usually transitions into a trading range. The top of the range is typically around the start of the parabolic bear channel, which is above 1.1730.
But the bear channel has been tight. Day traders have only been selling. The bulls need the market to stop going down and start going sideways. If it does, day traders will start to buy for 10-pip scalps. If there is a trading range with a good buy signal bar, day traders will be willing to hold part of their position for a possible test of 1.1740.
The bears want the overnight bear trend to continue to far below 1.17. Because the overnight selloff is in a sell climax pattern, it is more likely that it will evolve into a trading range.
If it enters a trading range, it will be in Breakout Mode
But if it does enter a trading range, it will be in Breakout Mode. Yes, the bulls will want a trend reversal up from support. But the bears see the trading range as a bear flag. They hope that the bear trend will resume and break far below 1.17 today.
Since the day’s range is already about average and the 4-day selloff is extreme and at support, today will probably enter a trading range for the rest of the day. The bears will try to get today to close below the October 15 low of 1.1689. That would increase the chance of lower prices tomorrow.
However, the bulls want today to close 20 to 30 pips above the day’s low. That would make the bears take some profits and increase the chance of sideways to up trading tomorrow.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
End of day summary
The Emini sold off to below yesterday’s low and then reversed up to above yesterday’s high. Today was therefore an outside up day.
Today is now a buy signal bar on the daily chart. But with the close back down in the middle of the range, today is a weak buy signal bar. After 4 days down, the Emini will probably bounce for a day or two. If it gaps up tomorrow, there would be a 2-day island bottom, which is a minor buy signal.
The bulls, however, hope that the bull trend is resuming. At a minimum, they want the month to have a bull body on the monthly chart. That would increase the chance of sideways to up trading in November and reduce the chance of much lower prices in November. Remember, tomorrow is the final trading day in October.
The bears want the month to close on its low. That would increase the chance of lower prices in November, but that probably will not happen after today’s strong reversal up.
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.
Thanks Al, maybe you can help me understand the significance of bad buy signal Bar 3 and BTC Bar 61. Theoretically, should the market test both of these prices?
Feel free to answer in the trade room if easier for you.