Emini and Forex Trading Update:
Monday February 24, 2020
I will update again at the end of the day.
Pre-Open market analysis
I have been saying for a couple weeks that the February rally looks more like a bull leg in what will be seen as a trading range than a resumption of the 5 month bull trend. Furthermore, I said that the parabolic wedge buy climax on the daily chart made it likely that the Emini would soon reverse down.
The Emini had strong selloffs on the 5 minute chart on Thursday and Friday. This was a possible start of a test down to the January low.
The Emini sold off strongly overnight and it will probably open around the February 10 low. I have been saying that the January low was also a reasonable target. I have said that the target date was by the end of March. It might get there by the end of February.
A couple weeks ago, I said that there was a 30% chance that then Emini could get there by the end of February. I mentioned that the Emini had a bar with a big tail on top on the monthly chart in January and that increased the chance of a 2nd similar bar in February. That increased the chance for a reversal down in the 2nd half of the month.
Weekly Low 2 top sell signal
Last week closed near its low on the weekly chart. It is therefore a sell signal bar for this week. There is a Low 2 top at the top of the bull channel on the weekly chart. This week will trigger the sell signal on the open today by gapping below last week’s low.
I want to repeat one final point that I have said many times. This year will probably be mostly sideways between 2900 and 3500. That is still the case. Since the Emini was getting near the top of that range, there was an increased chance of a near-term pullback. I said that the Emini was probably putting in an early high for the year. The year will probably have several smaller trading ranges lasting a month or two within a big trading range.
Market realizing that the corona virus is greatly under-reported
Finally, as many of you know, I am an MD. I have made the point many times in the chat room that the Corona virus is probably vastly under-reported. It therefore had a greater potential to slow the world’s economy than what the market might be considering. That is why I said in the chat room on Wednesday when the Emini was around 3390 that I went short. I will probably take some profits early today.
Overnight Emini Globex trading
The Emini is down 90 points in the Globex session. There will be a big gap down. A big gap increases the chance of a trend day. When the gap is down, if there is a trend, down is more likely than up. There is always a concern about a crash when there is a huge gap down, but crashes are rare and therefore the chance is small.
The Emini will be far below the 20 bar EMA on the 5 minute chart on the open. Traders do not like selling too far below the average price. That usually reduces the chance of a big selloff on the open.
While some traders might see the selloff as a brief opportunity to buy at a big discount, the 3 day selloff is surprisingly big. Many traders expect some follow-through over the coming days. That will reduce the number of traders willing to buy aggressively on the open.
With both bulls and bears hesitant, wanting more information, the Emini will probably enter a trading range for the 1st hour or two. The bears will look for a double top or wedge top near the EMA. The bulls will look to buy a double bottom or wedge bottom.
Also, if there is a trading range open and then a trend up or down, the trend usually is not especially strong. There is usually more trading range trading later in the day.
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.
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 daily chart of the EURUSD Forex market had a big bull bar on Friday. There was a parabolic wedge sell climax into the April 2017 gap. Last week’s low got to within 1 pip of closing the gap.
The sell climax down to major support compelled bears to take at least partial profits and for bulls traders to buy. However, the February selloff was surprisingly strong. Therefore the 1st reversal up will probably be minor. That means it will lead to either a bear flag or a trading range.
Traders do not believe that the bulls have a reasonable chance of getting a bull trend without first creating at least a small trading range and a double bottom. But traders do expect at least a couple weeks of sideways to up trading to begin soon.
It might have begun on Friday, but there might be a brief plunge to below the April 7, 2017 high first. That would close that gap on the daily and weekly charts. The minimum goal for a minor reversal up is a pullback to above the October low and up to the EMA.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market has been in a tight range overnight in the middle of Friday’s range. The bulls are not yet getting follow-through buying. This increases the chance that the EURUSD will have to close the gap above the April 7, 2017 high before there is a 2 week short covering rally.
If today remains an inside bar on the daily chart, it will be a breakout mode bar for tomorrow. That means it would be both a buy and sell signal bar. The bears want today to close near its low. That would make today a stronger sell signal bar. The bulls want today to close near its high and be a stronger buy signal bar.
While today could become a big trend day up or down, it will probably remain small. It is disappointing the bulls who wanted strong follow-through after Friday’s big bull day. They will be hesitant to buy aggressively. Friday disappointed the bears and now they, too, are hesitant.
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.
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 huge gap down, there was a brief rally. There was a micro double top, a triangle, and then a spike and channel bear trend. The Emini traded below the December 31 close and gave back all of the year’s gains.
Traders bought a wedge bottom that was just above the January low. The rally failed and today closed just below the open. It formed a bear bull bar on the daily chart.
So far, February is a micro double top with the January high on the monthly chart. If the Emini trades below the January low this week, February will be an outside down month and a micro double top. That would increase the chance of lower prices over the next month.
I have said many times that the February rally was probably a leg in a trading range and the the Emini should test the January low. Today was the test. The momentum down is strong. Traders should expect lower prices for at least a few days and possibly a couple weeks.
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 last week EURUSD had closed the Apr 2017 gap and continued further, say by ~20pips, and had stayed in that zone for a few hours, would you see the prognosis for a bull move from current levels as being stronger than it is now ? — does a stronger first-test usually make for a stronger reversal ?
related, does the fact that that test occurred during US overnight make it less definitive, vs. occuring during US day ?
btw, an additional appreciation for your EURUSD commentaries, at the same high-level as your ES ones — regardless of whether a trader trades EURUSD (I do now , as I’ve shifted to higher time-frames), your EURUSD work is just as helpful to any trader.
Best, Charles
By not closing the gap by exactly 1 pip, the bull case is better, but the odds still favor a minor reversal up and then a closure of the gap. The problem that the bulls have is that the parabolic wedge was in an exceptionally tight bear channel. That makes it more likely than not that there will be a lower low, which means that the gap would close. For the current minor reversal, the outlook would be the same whether or not the gap closed. The odds favor a 150 – 200 pip rally over 1 – 3 weeks and then a move below the current low. What happens during the following several days will tell traders whether the EURUSD will continue down to the 2017 low and possibly par.
Thanks Al.