Emini and Forex Trading Update:
Wednesday December 23, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini formed a trading day and an inside day yesterday. It is therefore both a buy and sell signal bar, but because the Emini is in the middle of a 4-week trading range, there might be more follow-through buying below than sellers above. It is not a reliable setup for stop order traders.
A trading range is a Breakout Mode pattern. Traders believe that there is about a 50% chance of the breakout being up or down.
Traders are deciding whether December and the year will close on the high. If it does, there would be an increased chance of higher prices in early January. In fact, 2021 could gap above the high of 2020. There would then be a gap up on the yearly, monthly, weekly, and daily charts. The bulls would see that as a sign of strength, and it would make traders more willing to buy at the start of the year.
The alternative is for December to close around the open or low of the month. That would disappoint the bulls and make them less willing to buy at these prices. It would increase the chance of lower prices in early January.
But even if there is an early January rally, the bars on the daily chart for the past 7 weeks have been remarkably neutral. That makes a pullback to at least 3500 likely to begin either in December or early January.
Overnight Emini Globex trading
The Emini is up 11 points in the Globex market. Even though the Emini has been sideways for a month, it is still in a bull trend since the October 30 low. Also, Monday was a strong bull day. Therefore, if there is a trend today, up is more likely. Remember, the bulls have been in control since the March low. They want the year to close on the high of the year. There is at least a 50% chance that it will.
Whether or not today is a trend day, most days over the past 7 weeks have had at least one swing up and one swing down. Consequently, day traders will expect at least one reversal today. Also, most days have had a lot of trading range price action, and most have closed either in the middle of the day’s range, like yesterday, or near the open. Day traders will look for a test of either of those prices in the final hour.
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. Buyers of both 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 sideways for December. Because the rally from the November 4 low has had 3 legs up, a reversal down from here would be from a wedge top.
A wedge top reversal could be major. That means it would last at least a few weeks, and have at least a couple clear legs. Also, traders would look for the selloff to test major support, like the September 1 high.
Yesterday reversed down a 2nd time from the wedge top. It was a big bear bar closing near its low. It is therefore a 2nd sell signal bar. If today trades below yesterday’s low, it will trigger the Low 2 sell signal.
However, unless the bears can create consecutive big bear bars, traders will conclude that the selloff from the December high is minor. That means they expect it to become a bull flag, or a trading range and not a bear trend.
If today is a bull bar closing near its high, it would be a 2nd attempt in 3 days to resume the bull trend. Today would then be a High 2 buy signal bar.
With mostly sideways trading for all of December, a High 2 buy signal and a Low 2 sell signal are less reliable. Traders see December as a trading range.
When a market is in a trading range, traders tend to take quick profits. That results in more sideways trading, instead of a resumption of the bull trend, or a reversal down into a bear trend. So, yes, yesterday is a sell signal bar and today could become a buy signal bar, but neither is a reliable signal. Traders will bet that the trading range will continue indefinitely.
Currency markets often break out or reverse around the start of a year. The EURUSD might wait until January before deciding on the direction of its next move.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market has been in a small trading range so far today. It has held above yesterday’s low and therefore has not yet triggered the Low 2 top sell signal. Day traders have been scalping up and down for 10 pips.
The bears want a strong break below yesterday’s low and a bear trend. Since the EURUSD has been in a trading range since early December, a 2nd consecutive big bear day is unlikely.
The bulls do not need a big bull day. They simply want today to close near its high. Today would then be a buy signal bar for tomorrow. That would increase the chance of at least slightly higher prices tomorrow.
While day traders have been scalping overnight, they will switch to swing trading if there is a big, sustained move up or down. However, it is more likely that today will remain a trading range day.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
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. Buyers of both 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
Today went sideways above the 60-minute EMA and then rallied in a Small Pullback Bull Trend. Because the trend lacked strong breakouts, it was likely to not last all day. Instead, the Emini reversed down from above the 3700 Big Round Number and formed another trading range.
At the end of the day, the Emini collapsed to a measured move down. It closed near the low and today is a sell signal bar for tomorrow. But, the Emini has been in a trading range for a month. Traders expect reversals instead of trends, even though there eventually will be a successful breakout.
The bulls are trying to get the year to close on the high. With the light holiday trading, the Emini might be mostly quiet until late next week, and then either rally to close the year on the high, or selloff quickly for 100 points if the bulls give 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.
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.
Today was the day the Russell 2000 finally fulfilled its destiny by trading 2000.