Emini and Forex Trading Update:
Thursday December 31, 2020
I will update again at the end of the day.
Pre-Open market analysis
Yesterday was an inside bar and it followed an outside bar. There is now an IOI (inside-outside-inside) pattern on the daily chart — an IOI Breakout Mode pattern. With today being the final trading day of the year, there is an increased chance of a trend day. Even if today is a trading range day, there is an increased chance of a strong trend up or down in the final hour of the year.
The bulls want the year to close on its high. That would increase the chance of a gap up on Monday, which would create a gap up to a new all-time high on the daily, weekly, monthly, and yearly charts. I suspect that has never happened before, but I did not check.
The bears want today to trade below yesterday’s low to trigger the daily sell signal. If today gaps down, there will be a 3-day island top. The bears want the year to close at least 50 points down from the high. That is what is needed to create a conspicuous tail on the monthly and yearly candlesticks. If they get it, it would increase the chance of a reversal down to 3500 in January.
At a minimum, the bears want the week to close below the open, which was a magnet for the final 2 hours yesterday. They would prefer December to close below the open of the month, but the open might be too far below.
Overnight Emini Globex trading
The Emini is down 2 points in the Globex session. However, it is just above yesterday’s low, and today therefore still might gap down on the daily chart. If there is a gap down, it will likely be small. Small gaps typically close in the 1st hour and are insignificant.
The bears want today to trade below yesterday’s low, which would trigger the sell signal. They then want a big bear day.
While there is an increased chance, given the IOI and the importance of the final trading day of the year, big trend days come only about 20% of the time. It is still more likely that today will be like most recent days, and spend a lot of time going sideways. Traders might be waiting for the US Georgia election on January 5, before deciding on the direction of the next move on the daily chart.
It is important to remember that the bulls want the year to close on its high. This is true even if today trades below yesterday’s low in the 1st hour. There is an increased chance of a trend day, in either direction, on the final day of the year and with an IOI Breakout Mode Pattern.
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 in a Small Pullback Bull Trend. However, there have been 3 pushes up from the December 1 low. That wedge is nested within a bigger wedge that began on November 4. A nested wedge usually attracts profit-taking. Therefore, traders should expect a 2-week pullback to begin within the next couple weeks. However, it is important to note that a wedge rally often has a 4th leg up before there is a reversal. Also, when there is a bull channel, there is a 25% chance of a breakout above the channel, and an acceleration up into an even stronger trend.
A Small Pullback Bull Trend is strong. A strong bull trend typically has to transition into a trading range before reversing into a bear trend. Consequently, even if there is a strong reversal down in January, it will probably only lead to a trading range and not a bear trend.
Today so far is a bear inside day. It is therefore a potential sell signal bar. But it is coming after 6 consecutive bull bars, and it has a prominent tail below. It is therefore a lower probability sell setup. The bears will need either a big reversal down over the next couple days, or a micro double top to make traders think that profit taking is underway. Remember, there is an increased chance of Forex reversals at the start of a year.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market tested yesterday’s high and then sold off. But the selloff have several big bounces on the way down. That is trading range behavior. Also, it reversed up strongly from just above yesterday’s low, and is now back to the middle of the day’s range.
Day traders have been buying and selling for small scalps. While the reversal up over the past hour has been strong, it will probably not continue up to above yesterday’s high. Therefore, day traders will continue to expect today to be an inside day and a trading range day.
The bulls want a 7th consecutive bull day. They also want the year to close on its high, which means above yesterday’s high. But 7 consecutive bull days is unusual. Also, the open is near the high of the day. While it is a magnet, today will more likely begin to go sideways within an hour, in a 30-pip range with the open being at the top of the range.
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
After reversing up on the open from below yesterday’s low, the Emini rallied to a parabolic wedge top. It then entered a trading range for 4 hours, and the trading range was a triangle. There was also a head and shoulders bottom. A strong bull breakout continued to above yesterday’s high. Today therefore was an outside up day.
The rally continued up to a new all-time high, and the year closed at a new high. I have talked about this possibility often over the past few weeks. I have been saying that the bulls want a gap up to a new all-time high on Monday. That would create a gap up on the daily, weekly, monthly, and yearly charts, and it would increase the chance of at least slightly higher prices in January.
However, as strong as the bull trend it, there is a Spike and Bull Channel. That typically leads to a couple legs down to the start of the channel. Traders should expect a test down to 3500 in January, but the Emini will probably go at least a little higher first.
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.
Option traders are positioned for something to happen next week. The expected move in the S&P 500 by Friday expiration is 93 points.
Hi, Al, Happy new year! I have a question in regards of yesterday’s set up, why didn’t you mark the Low 2 for short at the beginning of the day, is it because the signal bar is too bullish and then context doesn’t have enough bear bar?