Emini and Forex Trading Update:
Wednesday October 21, 2020
I will update again at the end of the day.
Pre-Open market analysis
Over the weekend, I wrote that the Emini futures probably had to fall below the September 16 high, which it did on Monday. This is because the Emini has been in a trading range for 2 months and breakouts usually fall below breakout points. September 16 was the breakout point for the rally 2 weeks ago.
The pullback in the cash index has not quite reached the February high, which has been an important magnet. That target is 26 points below Monday’s low. Also the 5-day selloff was strong enough so that a 3rd leg down would not surprise traders. Therefore, the bulls might want the selloff to fall a little more before they look for a reversal back up.
At the moment, the odds favor higher prices, but the Emini might have to fall about 26 points below Monday’s low so that the cash index will test the February high. But, if there is a rally above last week’s high and then a reversal down, there would be a wedge rally to a double top, and that is a good sell setup.
Can today be a big bear day, which would be a 2nd leg down after Monday’s big selloff? Yes, but the Emini is at important support. Also, yesterday was a doji day and therefore the bears failed to get immediate strong, follow-through selling. That means the bears are not as strong as they could be, and that reduces the chance of a big selloff to far below the September 16 high.
Overnight Emini Globex trading
Yesterday rallied and sold off to around the open. It was a trading range day and an inside day. That is a sign of hesitation and uncertainty. The bulls want the rally from 2 weeks ago to resume. However, the cash index might have to fall to the February high before the bulls will buy again.
Uncertainty usually results in sideways trading. That increases the chance of more sideways trading today.
Can the cash index collapse to far below its February high? It is more likely that there will be buyers there. Consequently, that will limit the downside in the Emini today.
Can the Emini rally strongly to above yesterday’s high and then continue up to last week’s high? Traders believe that the 6-day selloff is a pullback and not a reversal. That increases the chance of a big bull trend day coming at any time.
However, the Emini has been mostly sideways for 4 days. That makes more sideways trading likely again today. The legs up and down have been big enough for intraday swing trading.
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. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. 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 rallied for a month, but it is still in its 3-month trading range. There will eventually be a successful breakout and a measured move up or down. But until there is a breakout, each strong rally and selloff is more likely to reverse than lead to a trend.
The bulls want this rally to continue up to above the September 10 lower high and then above the September high. If they get consecutive closes above the September high, traders will conclude that the summer rally is resuming.
The bears expect a reversal down from around where the EURUSD is now and the September high. They see the rally since the September low as just 2 legs up in a trading range. This is just the mirror image of the 2 legs down to the September 25 low.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market continued its 3-day rally overnight. But, unlike the past 3 days, there was a 30-pip selloff overnight.
I have been saying that the rally would probably reach the September 21 sell climax high because that is what normally happens in a trading range. Now what? The momentum up is strong enough for the rally to continue at least a little higher, like to the September 10 lower high.
However, the overnight 30-pip selloff is a sign that the bulls are starting to take profits on rallies and that the bear day traders are again willing to sell reversals down. The 5-minute chart has been in a trading range for 6 hours. Day traders have been buying and selling for 10 – 20 pip scalps.
Traders know that the momentum up has been strong enough so that the rally will probably go at least a little higher over the next few days and reach the September 10 lower high. But the chart might pause for a couple days first.
Can the EURUSD reverse down abruptly today? That is unlikely. After 2 days where traders bought 10 – 20-pip selloffs, they will probably buy the 1st one-day pullback.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
I will post chart after the close.
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. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. 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
As I said was likely, today was a trading range day. The Emini broke below yesterday’s low to trigger the sell signal on the daily chart. But I wrote that it was a weak sell setup and that there would probably be buyers below.
There is now a micro double bottom with Monday’s low. But since today did not close on its high, this is a weak buy setup.
Traders are still deciding if the cash index has to drop another 50 points to its February high to find buyers or if the 2-week pullback has gone far enough. At the moment, there is a 50% chance of a 3rd leg down on the 60 minute Emini chart. A reversal up at that point would be from a wedge. Also, it would be around the support of the February high on the cash index.
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.
