Emini and Forex Trading Update:
Tuesday February 2, 2021
I will update again at the end of the day.
Pre-Open market analysis
Yesterday was a bull trend day and it reversed Friday’s selloff. It is a High 2 buy signal bar for today on the daily chart. But it has a prominent tail on top, and the Emini has been in the January trading range. This is a low probability buy setup.
There are bull trends on the daily, weekly, and monthly charts. However, all 3 time frames have an increased chance of being in a 10% pullback, as I discussed over the weekend. Therefore, a reversal up from here might be just a bounce in a bear channel.
With the daily chart sideways for 5 weeks, traders are looking for reversals every few days. When the chart is unclear, traders tend to buy low, sell high, use wide stops, scale in, and take quick profits. The result is a trading range. That is what has been going on all year so far.
Thursday’s minor lower high is a magnet above. The Emini might have to test it this week. If the bulls break strongly above it, traders will conclude that the selloff has ended.
But if the Emini reverses down from there, traders will see yesterday’s rally as a failed test of Thursday’s high. There would then be a double top lower high, which would give the bears another chance to test down to 3500 in February.
Overnight Emini Globex trading
The Emini is up 34 points in the Globex session. It will therefore probably gap up and open around 3800. The Emini has been oscillating around the 3800 Big Round Number all year, and therefore traders see it as important.
Yesterday’s rally was extreme and therefore a buy climax. While the bulls want a 2nd consecutive big bull day, the day after a buy climax day has a 75% chance of trading sideways to down for a couple hours starting by the end of the 2nd hour. If today is a bull trend day, it will probably be a weaker type of trend, like a broad bull channel, or a trending trading range day.
Each of the past 4 days was a big reversal day, and the bears want the Emini to reverse down today. Because it is breaking far above the 60-minute EMA, and Thursday’s high is a strong magnet above, today will probably not be a big bear trend day.
Traders should expect several hours of trading range trading today. At a minimum, there should be at least one swing up and one swing down.
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 is at the bottom of a 2-month trading range. Traders are looking for a breakout below or above, and then a 300-pip measured move.
Every trading range has both a buy and a sell signal. The bulls see a triangle bull flag since the January 6 high. The bears see a head and shoulders top, which is also a lower high major trend reversal.
The EURUSD has been testing the bottom of the range for 3 weeks. Today’s low so far is only a couple pips above the January low, which is the bottom of the range. Therefore, the EURUSD might break below it today.
But the bears need more than a break below the range. Traders want to see consecutive closes below the range before they conclude that the breakout is probably going to be successful.
Sell signal on the monthly chart
There is a sell signal on the monthly chart (not shown today), which will trigger if the EURUSD falls below last month’s low (the January 1 low). Since January had a bear body on the monthly chart and there is a wedge rally to a double top on the monthly chart, traders want to see if there are many sellers below last month’s low. That means that the EURUSD should at least dip below the January 1 low. It might do it today.
Remember, last month’s low is the bottom of the 2-month trading range on the daily chart, and the neckline of the head and shoulders top. The pattern on the monthly chart makes it more likely than not that the EURUSD will continue down.
As I wrote over the weekend, the next target is the September 1 high, which was the breakout point for the December rally. A more important target on the monthly chart is the November low of 1.1603. That is the bottom of the most recent leg up, which is always a target when there is a reversal down.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market sold off to below yesterday’s low. It got to within 2 pips of the January 1 low and then stalled. There is a 50% chance that today will break below that low.
At a minimum, the bears want a bear body today after yesterday’s big bear day on the daily chart. If the bears get a bear follow-through bar today, it would increase the chance of at least slightly lower prices tomorrow.
But the bears want more. They would like today to be a big bear trend day closing on its low, and closing far below the January 1 low at the bottom of the trading range. Because of the bounce from just above that low and the unremarkable range today, the bears will probably not get all that they want. But they will try to have today close below the open of the day.
The bulls hope that the selloff is just a test of support. But they need a strong reversal up over the next few days to convince traders that the bull trend on the daily chart is resuming.
So far, today is a bear trending trading range day. That reduces the chance of a big move in either direction from here. However, the bears will sell rallies, and try to get today to close on its low, and at least below the open. And the bulls will buy reversals up, hoping for a reversal day and a close above the open.
Unless there is a series of trend bars from here in either direction, traders will assume that the 2-hour trading range will continue. That means they will be scalping until there is a clear breakout.
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. 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
The Emini gapped up today and rallied in a Bull Trend From The Open. That most often evolves into a trading range, which happened today. The rally broke above last Thursday’s minor lower high, but the bears will still try to get a reversal down from below the all-time high.
The Emini has been in a trading range for a month. That is a Breakout Mode situation. The range is 200 points tall. A bear breakout and measured move down would test the November 10 low, which was the start of the 3-month bull channel, and it is a magnet.
Because the Emini is in a trading range, traders are buying selloffs and selling rallies. After a 2-day rally, there is an increased chance of a selloff for at least a day or two, especially with the reversal down at the end of the day.
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.
Dear Al,
After big gap up and strong bull bar 1, isn’t it possible trend from the open and buying above bar 3, H1 bull flag, better than bar 8? Instead I see possible WT 2-4-7 and L1 2 L2 8 to be minor reversal down to EMA. What is the reason of buying bar 8?
Thank you.
I wrote about that on the Encyclopedia version on the slide. 3 was a High 1, but it was also a 2nd consecutive bear bar and the Emini was still on the sell below 2. As you can see, I have a green box above the high of 2.
Al, I see this as:
1) MTR
2) Weekly first pullback, which came after a tight channel so likely to be bought.
So, odds of downside still in play.. agree?
The Emini has been sideways for a month so I am neutral on the daily chart, but I agree about the potential because of the Spike and Channel rally. The start of the channel is a magnet, and it is around 3,500. That would be a 10% correction.
If the Emini forms a reversal down from a lower high this week, there would be a credible lower high major trend reversal. All major reversals have a 40% chance of leading to an actual major reversal (i.e., into a bear trend).
A selloff to 3,500 would be minor. A selloff to the October low at 3,200 would be major on the daily chart, but minor on the monthly and probably on the weekly charts.
Thank you very much Al, stay safe wherever you are..