Emini and Forex Trading Update:
Wednesday January 20, 2021
I will update again at the end of the day.
Pre-Open market analysis
The Emini formed a doji bar yesterday on the daily chart, with Emini in tight trading range. It has been in a tight trading range for 9 days, and in a bull channel for more than 2 months, with Biden’s inauguration today. Traders expect a break below the bull trend line and a test of the start of the channel. That is the November 10 low at around 3500.
However, channels can last a long time before the bulls take profits. Additionally, there has not been a big bear day in 11 days, and there is no top yet. But because this channel has lasted about 50 bars, which is unusually long, traders should get a reversal down within a few weeks.
While the bull trend is intact and there is a measured move target above at 3895, the bulls only have a 25% chance of a successful breakout above the bull channel, and the evolution into a stronger bull trend.
The importance of the close of January 19, 2021
Yesterday’s close will be important for the next 4 years. Why? Because it is the final close before Biden takes office. Traders will refer to it to determine how the stock market performed under Biden.
For example, during the pandemic low last year, I pointed out that the selloff fell below the January 19, 2017 low, which was the close on the day before Trump took office. That meant that all of the gains of his presidency were completely erased. However, the strong reversal back up more than made up for the loss.
The point is that the January 19, 2017 close was tested several times during his presidency, even in the final year. Whether the stock market goes up or down over the next few years, yesterday’s close will be a magnet, and it probably will be tested several times.
Overnight Emini Globex trading
The Emini is up 19 points in the Globex session. It will therefore probably gap above yesterday’s high. It is only about 14 points below the all-time high, and it is in a strong bull trend channel on the daily chart.
Traders expect a test of the all-time high today. With the gap up in a bull trend just below the all-time high, there is an increased chance of a bull trend today. But if there is a bull trend, there is an increased chance of a reversal down in the middle of the day from around the old high.
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 sold off for 2 weeks, and it is now at the bottom of its 2-month trading range. Today so far is a bear bar. It is also a 2-day pullback in the selloff. That makes it a Low 1 sell signal bar.
However, a Low 1 bear flag at the bottom of a trading range is a low probability sell setup because most attempts to break out of a trading range fail. Furthermore, a break below today’s low would be a 3rd leg down. A third leg down typically attracts profit taking. That means at least a minor reversal up from a wedge bottom.
The bears will have a better chance of a successful breakout if today closes on its low. However, the selloff has lost momentum over the past 6 days. That increases the chance that the EURUSD will bounce back to the middle of the range if it sells off in the next few days, down to the January 1 low at the bottom of the range.
The bears want consecutive closes below that January 1 low. If they get them, traders will look for a measured move down to the next support. That is the November 4 low.
What is more likely, a breakout above or below the range? The wedge top on the weekly chart (not shown) makes the bear breakout more likely. However, a trading range can last a long time before there is a breakout, and most breakout attempts fail. Consequently, traders expect a reversal up within a week to the middle of the range.
But if that bounce reverses down again, traders would begin to see a head and shoulders top on the daily chart, in addition to the wedge top on the weekly chart. The odds of a bear breakout would go up.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market rallied early in the overnight session, but then sold off in a tight bear channel to the low of the day. Because the selloff has been strong, day traders have only been selling. But if the bulls get a 20- to 30-pip bounce, day traders will begin to buy as well.
At the moment, the bulls only have a 20% chance of a reversal back to the high of the day. However, they would like today to bounce back up to near the open. Today would then be a doji bar on the daily chart. It would be a weaker sell signal bar for tomorrow.
The bears do not need the bear trend to continue all day. If today closes where it is now, the bears would have a good sell signal bar on the daily chart. Their goal at this point is to have the day close near its low. That would increase the chance of lower prices tomorrow.
Since they do not need the bear trend on the 5-minute chart to continue, they will probably soon begin to sell rallies instead of at the market. That will convert the strong bear trend into a trading range.
Once that happens, bull day traders will begin to buy reversals up from the low for scalps. However, unless there is a strong bull trend reversal, which currently is unlikely, bear traders will look to sell all day.
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 and rallied in a Bull Trend From The Open. After a 3-bar pullback at the end of the 2nd hour, the rally resumed as a Small Pullback Bull Trend.
After 11 am PST, there was a pullback to the EMA. When the Emini stays above the EMA for 50 bars, there is a 99.5% chance that there will be at least 3 bars with lows below the EMA, which happened today. The bulls then typically try for trend resumption up to a new high.
Today was a buy climax. There is only a 25% chance of a 2nd strong bull trend day tomorrow. Additionally, there is a 75% chance of at least a couple hours of sideways to down trading that starts by the end of the 2nd hour.
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.
