Emini and Forex Trading Update:
Tuesday January 21, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini gapped up to another new high on Friday. But Friday was a small day and the buy climax has been extreme. That increases the chance of a week or two of profit-taking soon. I mentioned over the weekend that there is a 60% chance of a 5% pullback beginning within a few weeks.
For example, a gap down this week would create an island top. Island tops and bottoms are minor reversal patterns, especially in strong trends. However, they sometimes come at major turning points. Because the bull trend on the weekly and monthly charts is strong, the best the bears can probably get is a 1 – 2 week pullback from this island top.
Can the bull trend continue through the end of January? Yes, but because it is so unusually extreme, the odds of a 1 – 2 week pullback are going up.
Overnight Emini Globex trading
The Emini is down 11 points in the Globex session. It will therefore probably gap down. That will create a one day island top on the daily chart. The bulls will try to close the gap to erase the island top. The daily chart has been in a Small Pullback Bull Trend for 4 months. Every pullback has lasted only 1 – 3 days. The bulls want this to continue.
However, at some point the bulls will take profits. That will lead to a 1 – 2 week pullback. The bears want to keep the gap open. Furthermore, they want today to be a big bear trend day. If they succeed, that will increase the number of bulls taking profits this week. That could lead to a 1 – 2 week selloff.
As I mentioned over the weekend, this week was likely to be a smaller bar on the weekly chart. After that, there will probably be one more brief push up on the weekly chart before a 5% correction. But there is a 40% chance that a strong bear day today could begin that correction.
Because today can influence the appearance of the next couple of weeks, there is an increased chance of a bear trend. Can today be an outside up bull trend? Yes, but that is unlikely after the 2 big bull bars on the weekly chart. Traders are more likely to take some profits this week.
Friday’s setups
Here are several reasonable stop entry setups from Friday. 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.
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.
EURUSD Forex market trading strategies
The daily chart of the EURUSD Forex market traded above Friday’s high overnight. This triggered a double bottom buy signal with the December 20 low.
When it turned down last week, it formed the right shoulder of a head and shoulders top. When there is both a top and a bottom, a chart is in a trading range. That means it is in Breakout Mode. Traders know that the probability of a bull breakout of the range is about the same as for a bear breakout.
The EURUSD has been in a trading range for 6 months. Traders are deciding if the 2 year bear trend has ended. The bulls need breaks above major lower highs to convince traders that the bear channel on the weekly chart has converted into either a trading range or a bull trend. The bears want the 20 month series of lower highs and lows to continue.
While in a trading range, buy and sell signals typically are not strong. Also, the legs up and down reverse every few weeks. The current selloff has lasted about 3 weeks to the bears are taking profits and the bulls are starting to buy.
Will this be the start of a bull trend? Probably not. Just look to the left. There have been many strong rallies and selloffs. Each one has failed. There is no reason to believe that this one will be different. Traders will continue to look for reversals and quick profits until there is a strong break above or below the 6 month range.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market rallied 35 pips overnight. Forex day traders have only been buying for the past 4 hours.
But the day’s range now is about the size of recent average days. Unless the bars on the 5 minute chart start to become bigger, day traders will assume that the overnight bull trend will soon convert into a trading range.
Once they see a 20 pip pullback, they will begin to sell rallies for scalps. Until then, they will continue to look to buy 10 pip pullbacks. However, they will probably scalp out of their longs since they are disappointed by the rally being so small.
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.
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.
End of day summary
The Emini gapped down, but rallied on the open. Although it got near Friday’s high, it failed to break above it to form an outside up bar.
There is now a micro double top on the daily chart. Today is therefore a sell signal bar for tomorrow. However, it has a bull body and that lowers the probability for the bears.
Also, with 2 big bull bars on the weekly chart, this week will probably not be the start of a bear trend. However, there is still a 60% chance that a 5% pullback will begin within a few weeks. I talked about this over the weekend.
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.
