Emini and Forex Trading Update:
Wednesday May 13, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini yesterday traded above Monday’s high and then below its low. It was therefore an outside down day. What is interesting is that Monday was an outside up day. Consecutive outside days (an oo pattern) are rare on the daily chart.
An oo pattern is a Breakout Mode setup. Traders theoretically sell below yesterday’s low and buy above its high.
The bears see yesterday as a sell signal bar for a double top with the April wedge rally. But yesterday was huge. When a sell signal bar is big, the stop is far above for bears who sell below the bar. Many bears want smaller risk. Instead of selling, they wait for a 50% bounce and then sell.
With fewer bears willing to sell below a big bear bar, there is often a bounce for a few days. Traders would then decide if that small rally was a resumption of the bull trend or a pullback in a new bear trend.
Yesterday was surprisingly big. A bear Surprise Bar typically has at least a small 2nd leg sideways to down. Consequently, even if the Emini bounces for a few days, there are many bears looking to sell the bounce.
End of rally or bull flag?
Is this the start of a move down to 2600? It is a good candidate, but traders want to see follow-through selling within a week or so.
If today is a bull day, it will be a High 2 bull flag buy signal bar for tomorrow. They will see it as a higher low double bottom with the low of w weeks ago. Traders will again believe that the rally will reach 3000 and the 100, 150, and 200 day moving averages before there is a pullback to 2600.
Can today rally strongly and totally erase yesterday’s selloff? Yes, but the 1st reversal up from a tight bear channel typically is minor. The bulls will probably need at least a small trading range and a major trend reversal.
Most likely, today will have at least one swing up and one swing down. Today is the follow-through day after a bear breakout. If it closes below the open, it will form a bear bar on the daily chart. That would confirm yesterday’s big bear breakout and increase the chance of lower prices.
Because of the month-long trading range, traders should expect disappointing follow-through. Today will probably close around its open and have a small bull or bear body. There is only a 25% chance of either a big bull or bear day today.
Overnight Emini Globex trading
The Emini is up 14 points in the Globex session. As strong as yesterday’s selloff was, it was climactic. There is therefore a 75% chance that today will begin a 2 hour sideways to up move by the end of the 2nd hour.
Since the daily chart has been in a trading range for a month, today will likely have a lot of trading range trading after yesterday’s big bear trend day. Trading ranges usually have bad follow-through. Traders should expect the bears to be disappointed today by a lack of strong follow-through selling today.
But if today is a 2nd big bear day, then the price action will have changed into trending price action on the daily chart. That would significantly increase the chance that this is the start of a move down to 2600.
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. 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 has been in a trading range. A trading range always has both a credible buy and sell signal. Reversals are more likely than successful breakouts.
The bulls see the chart as reversing up from a head and shoulders bottom. However, they need a strong breakout above the 6 day tight trading range. At a minimum, they want a bull bar closing near its high and above yesterday’s high. If they get that, traders will conclude that this is the start of a 2 week rally to the May 1 high or above.
But, if today does not close above yesterday’s high, traders will suspect that the bulls are not strong. If today or tomorrow is a bear bar closing near its low, there would then be a small Low 2 bear flag with the high from 3 weeks ago. Traders would then expect the bottom to fail. A strong reversal down this week would make a test of the March low likely next week.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market has rallied in a tight bull channel overnight. It is testing yesterday’s high.
Yesterday was a weak outside up day. The bulls need today to close above yesterday’s high to convince traders that last week was the start of a 2 – 3 week rally. Therefore, the bulls will buy pullbacks to get the day to close at its high and above yesterday’s high.
Since today is a possible breakout day, there is an increased chance of an acceleration up today. So far, day traders have only been buying. The bull channel is tight. But the bars are not big. This is not aggressive buying.
If the EURUSD starts to go sideways here, around yesterday’s high, the bears will begin to sell. Remember, they would like today to close near its low. Today would then be a sell signal bar on the daily chart.
Market have inertia
What is most likely? Markets have inertia. They tend to continue to do what they’s been doing. The EURUSD is in a 6 day tight trading range. It will probably stay there today.
The bull channel is tight so day traders so have have only been buying. But if the EURUSD has a 20 pip pullback around yesterday’s high, day traders will begin to sell as well.
Since today’s appearance can affect the direction over the next week, there is an increased chance of a bull breakout or a reversal down. The 1st reversal down will probably be minor. Consequently, the downside risk over the next couple of hours is small. The bears will probably need a 1 – 2 hour trading range before they can get a reversal down.
Most likely, today will soon enter a 20 pip trading range around yesterday’s high. Then, it will try to either breakout or reverse tomorrow.
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. 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
After a wedge rally to the EMA, the Emini sold off strongly again today. This is probably the start of a move down to 2600. This week is now an outside down week on the weekly chart.
Since the Emini has been in a trading range for 2 1/2 years, the path will probably not be straight down. Although unlikely at the moment, it still might go above the April high and test the 200 day moving average first.
The bulls are hoping that these 2 days are just a test of the bottom of the 3 week trading range and 2800. But the 2 big bear days constitute a bear surprise. Traders expect at least a small 2nd leg down. There might be a bounce tomorrow after the short covering rally into the close today.
The bulls need a strong reversal up tomorrow to make traders think that the selloff might simply forming a double bottom with the May 4 low. That is the neckline of the double top. A measured move down from below it would take the Emini to around my minimum target, which is the March 31 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
If we look at the daily chart of the cash index – SPX, we see that SPX has touched the 200 D EMA twice ( 29th April and 12th May), and on each occasion, it reversed from there. So if the 200 D EMA is acting as resistance on the daily chart, what would be the implications down the line? Thanks.
The institutions use a simple 200 day moving average. Neither the Emini nor the cash has reached it yet. There is close to a 50% chance that the 2 day selloff will fail and the Emini will rally to the 200 day MA before turning down.
Hi Al, I got in long at 12:15 for the small bull signal bar, but I ended up stopped out in the next big bear bar, afraid of successful bear breakout. And then I shorted after this bear breakout bar, but again got stopped out in the next bull reversal bar. I ended up not taking long immediately because I was afraid of being stopped out at both directions. What would you do here? Thank you
If SPY does not go back to 3000, would you add more shorts? At what price would you do that?
I took profits today just above 2800 and will short again after a 1 – 2 day bounce. The Emini held above the low from 2 weeks ago so it is still in a 3 week trading range. I expect I will take quick trades, selling rallies and scaling in higher. I do not believe the Emini will make a new high so that is where I would change my mind. I debated holding part of my position and I might put it back on tomorrow, depending on what happens. As you know, I think the Emini is heading to 2600 in May or June. Since it is in a 2 1/2 year trading range, the path will likely be a zigzag.
Hmmm…. I went short today as we broke below todays early low. However I don’t see any reason to take profits at 2800? It looks like a PB to me and now nearing close the DB formed on the hour is looking weak…
Did you expect a larger bounce, or do you think it will reverse into close?
okay, we got the reversal 🙂
Got out at 2790
Correction 2796 🙂
Al,
With so many i-i and o-o patterns all over every time frame chart so far this week does that increase the chances that the weekly chart will go outside down this week?
Thank you.
Yes, the market tends to get focus on certain patterns occasionally, and it now is forming many oo and ii patterns. But the main reason for the weekly reversal is a 2nd failed attempt to get above the 20 week EMA in a buy climax.